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Peso weakens ahead of Jackson Hole meeting

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by August 24, 2016 General
Finance

Posted on August 25, 2016

THE PESO closed weaker against the dollar yesterday as caution persisted ahead of the speech of US Federal Reserve Chairwoman Janet L. Yellen, which could provide clues on the timing of the next interest rate hike in the world’s largest economy.

The local currency closed at P46.525 versus the dollar, losing six-and-a-half centavos compared to its previous finish of P46.46 against the foreign unit.

The peso opened yesterday’s trading at P46.50 per dollar which was also its strongest intraday level. Its weakest point was logged at P46.645 against the foreign currency.

Trading volume increased to $464 million from the previous day’s $440.35 million, data from the Philippine Dealing System showed.

“The peso continued to move sideways as investors were still awaiting the speech of Fed Chair Janet Yellen,” a trader said yesterday.

“There was a slight depreciation of the peso as a result of the unexpected increase in US new home sales,” the trader added.

Another trader shared the same view, saying “investors were reluctant to make aggressive moves ahead of [Ms.] Yellen’s speech.”

“Investors largely remained on the sidelines as they await [Ms.] Yellen’s speech at the Fed’s annual symposium in Jackson Hole, Wyoming for more clarity on the central bank’s timeline for raising short-term rates,” the trader added.

Market players have set aside expectations of higher US interest rates this year as recent economic indicators have been mixed. However, a series of hawkish signals from some Fed officials recently revived views for the US central bank to raise rates soon.

For today, a trader said the exchange rate may still move sideways ahead of Fed Chair Yellen’s speech. “Given that US new home sales unexpectedly increased, there is a chance that US existing home sales might also show an upward surprise tonight.”

The dollar-peso pair is seen moving within the P46.40 to P46.60 range today, one trader said, while another trader put the support at P46.45 and the resistance level at P46.65 against the foreign unit.

Asian currencies also fell broadly and the Indonesian rupiah slid to its lowest level in nearly two months on Wednesday as investors awaited a speech by Ms. Yellen for clues on the possible timing of an interest rate hike.

The rupiah fell to as low as 13,265 against the dollar, its lowest level since June 28. The rupiah last stood at 13,255, down 0.3% on the day.

After holding firm in the first half of August on the back of inflows from yield-seeking global investors, Asian currencies have sagged against the dollar over the past week. The greenback has gained a lift after recent comments from Fed officials took an upbeat tone on the US economy.

The focus now is on whether Ms. Yellen will also take a less cautious tone when she delivers a speech on Friday at the Fed’s annual conference in Jackson Hole.

The dollar could head higher if Ms. Yellen were to strongly hint at the possibility of the Fed raising interest rates at its next policy meeting in September, said Qi Gao, foreign exchange strategist for Scotiabank in Singapore.

The more likely outcome, however, is for Ms. Yellen to hold off from offering such clear clues and for the dollar to decline against Asian currencies, he said. “I don’t think she will provide any calendar-based guidance on the next rate rise,” Gao said, adding that Ms. Yellen is likely to reiterate that monetary policy decisions remain data-dependent. — Imee Charlee C. Delavin with Reuters

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