MANILA—Risk-on sentiment after the hike in the Federal Reserve’s key rates and expectations of at least two additional increases within the year boosted both the Philippine peso and the local stocks market on Thursday.
The local currency appreciated against the greenback and ended the trade at 50.12 from the previous session’s 50.34 finish, which a trader pointed to the materialization of the widely expected Fed rate hike.
After its two-day meeting, the policy-setting Federal Open Market Committee (FOMC) decided to increase by 25 basis points the Fed’s key rates to between 0.75 and one percent, three months after doing the same last December, which in turn is the first after nearly a decade of keeping the key rates between zero and 0.25 percent.
Following the rate increase decision, Fed chair Janet Yellen said they remained focused on their plan to implement additional increases within the year, to be backed by their openness to let inflation exceed the Fed’s two percent target range.
With the rate hike news already announced before the opening of Philippines’ financial market trading for the day, the peso registered a big improvement and started the day at 50.19 from day-ago’s 50.33.
It traded between 50.22 and 50.08 resulting an average of 50.19, which the trader said was also partly boosted by foreign investors.
Volume of trade reached USD 467.5 million, higher than Wednesday’s USD 394.8 million.
The trader expects the currency pair to trade between 50.00 and 50.20 Friday.
ING Bank Manila senior economist Joey Cuyegkeng said the peso, just like the other Asian currencies, benefited from the increase in the Fed rates.
“PHP’s strength day-on-day is more or less in line with the strength of other Asian currencies,” he said.
Cuyegkeng noted that market players were a bit worried before the rate hike decision announcement for fear that the Fed might turn hawkish and announce three more hikes instead of the widely expected three increases within the year.
“Yesterday’s decision to keep FOMC rate hike view in 2017 and 2018 (of three rate hikes every year) was a relief for the markets. This less hawkish outcome and FOMC’s favorable assessment of the US economy improved sentiment for risky assets such as stocks and (those from) EM (emerging market),” he said.
The economist, on the other hand, cited that the local currency’s underperformance since August last year “has worsened.”
“Addressing local uncertainties including a stronger presidential support for economic reforms would likely narrow such underperformance,” he added.
The positive vibe that the peso had during the day was also experienced in the local equities market, with the Philippine Stock Exchange index (PSEi) ending the day at 7,278.60 points, up 0.34 percent or 24.81 points.
Another trader said the local stock market tracked the regional rally because of the Fed rate hike.
All Shares also rose, with a 0.28 percent or 12.26 points increase to 4,386.08 points.
Most of the sectors also gained with Industrial leading the pack after rising 0.46 percent.
Property and Holding Firms both increased by 0.45 percent followed by Financials, 0.39 percent, and the Services with 0.22 percent.
Only the Mining and Oil finished on the red after it fell 0.57 percent.
Volume of trade covered two billion shares amounting to Php 6.1 billion.
Gainers led losers at 102 to 76 while 47 shares were unchanged.