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Peso inches higher on US-Japan deal, FOMC

peso inches higher on us japan deal fomc 816x445 - Peso inches higher on US-Japan deal, FOMC

THE PESO rose slightly on Tuesday amid optimism on the United States and Japan’s trade pact and ahead of the policy meeting of the US Federal Reserve.

The local unit ended at P52.26 against the greenback on Tuesday, appreciating by two centavos from its P52.28-to-a-dollar close on Monday.

The peso opened at P52.33 versus the dollar. It traded sideways, with its weakest point recorded at P52.395, while its intraday best was at P52.23 against the greenback.

Dollars traded on Tuesday grew to $1.140 billion against the $1.325 billion seen on Monday.

“The peso’s performance could be attributed to the optimism arising from the US-Japan initial agreement on tariffs. The market is also preparing for the FOMC (Federal Open Market Committee) which would trigger a somehow weaker dollar,” one trader said, noting the market is positive that the Fed will cut rates.

Another trader said the FOMC meeting also boosted the peso.

“Market participants anticipate dovish guidance from the US Federal Reserve policy meeting this week,” the trader said.

US President Donald Trump said on Monday Washington had struck trade agreements with Tokyo that could be implemented without congressional approval, but stopped short of assuring Japan that new tariffs would not be slapped on vital auto exports.

In a letter to the US Congress released by the White House, Mr. Trump said that he intends to enter into the agreements on tariff barriers and digital trade “in the coming weeks” and was notifying lawmakers that the tariff deal would be made under a trade law provision allowing the US president to make reciprocal tariff reductions by proclamation.

On a critical issue to Japan, Mr. Trump’s announcement left unclear whether he has agreed not to impose threatened national security tariffs on Japanese vehicles and auto parts. Avoiding the “Section 232” tariffs of up to 25% was a major motivating factor for Tokyo in negotiating with Washington on trade.

“At the finishing stage, we plan to reconfirm that 232 won’t be imposed,” Foreign Minister Toshimitsu Motegi, Japan’s lead negotiator, told a regular news conference in Tokyo on Tuesday.

Finance Minister Taro Aso said the deal won’t contain any provision on currencies — another worry for Tokyo. Japan wants to avoid any agreement hindering its ability to intervene in the foreign-exchange markets in the event of a spike in the yen, or to expand the Bank of Japan’s massive monetary stimulus.

For today, the first trader expects the peso to move at around P52.00 to P52.35 against the dollar.

“The local currency might appreciate further prior to the Fed policy meeting and on expectations that the August Eurozone inflation reports are expected to remain firm from earlier estimates. Exchange rates might move within the P51.15 and P51.35 range,” the second trader said. — L.W.T. Noble with Reuters

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