THE PESO may rebound against the dollar in the coming days after finishing at another record low last week as the market expects the US Federal Reserve to take a dovish stance at its policy review.
On Friday, the currency closed at a new all-time low of P63.615 against the dollar, weakening by 9.5 centavos from Thursday’s P63.52 finish.
It also touched a new intraday record of P63.62 during the session.
Year to date, the local unit has depreciated by P4.825 or 7.58% versus the greenback from its P58.79 finish on Dec. 29, 2025.
Week on week, the peso declined by 63 centavos from its P62.985 finish on Oct. 16.
The local unit closed at a record low for the fifth straight trading day on Friday after the Bangko Sentral ng Pilipinas (BSP) said it expects inflation to remain elevated until next year, the first trader said in a Viber message.
On Thursday, the BSP said it still expects inflation to average 6.1% for this year but raised its forecast for 2027 to 6% from 5.4% previously. It kept its inflation estimate at 3.3% for 2028.
This came as it expects strong El Niño conditions to add to price risks, adding to the continued spillovers from the prolonged Middle East conflict.
This view also prompted the Monetary Board to take a more aggressive stance at its policy meeting last week, hiking benchmark interest rates by 50 bps. Only two of 22 analysts in a BusinessWorld poll had correctly predicted the outsized increase, with the others only seeing a 25-bp move.
The BSP also left the door open to further tightening as needed to contain broadening price pressures.
September headline inflation accelerated to 7.2% from 6.1% in August and 1.7% a year ago. This matched the April clip and was the fastest in three-and-a-half years or since the 7.6% in March 2023. It also marked the seventh straight month inflation remained above the central bank’s 3% target.
A second trader said the BSP chief’s reiteration that they do not target a specific level for the peso and only intervene in the market to smoothen out large swings that could be inflationary likely contributed to Friday’s slide as it may have caused speculators to test the central bank’s threshold.
BSP Governor Eli M. Remolona, Jr. on Thursday affirmed their market-oriented exchange rate policy.
“We have estimates of how much the peso has to move before it becomes inflationary, and that’s when we tend to intervene,” he said after the policy meeting. “…But there is a threshold. Not every depreciation is inflationary. It has to be significant enough.”
A third trader said peso also weakened due to global oil price movements on Friday. Houthi attacks on Saudi Arabia and reports that the US and Israel had drawn up plans for renewed strikes on Iran after the US midterm elections lifted Brent to a new five-month peak of $114 a barrel, Reuters reported.
For this week, the market is likely to focus on the Fed’s policy meeting, where it is expected to hold steady amid mixed US data recently, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
The third trader said the peso could see some relief amid dovish comments from some Fed officials recently that have pushed back rate hike expectations to December.
The Fed raised rates in September for the first time since 2023, in an effort to control above-target inflation, but Fed funds futures late on Friday suggested a less-than 10% chance the Fed will hike again when it gives its policy statement on Wednesday, according to LSEG data, Reuters reported.
However, markets are leaning toward a hike at the next meeting in December, with futures suggesting a roughly 80% probability of such a move then.
Both the third trader and Mr. Ricafort expect the peso to range from P63.30 to P63.80 against the dollar this week. — Aaron Michael C. Sy with Reuters