The Philippine peso was choppy within tight ranges on Thursday ahead of a central bank policy meeting, with market participants divided on the possibility of a rate cut.
Other Asian currencies were slightly weaker against the dollar, which was propped up after US service sector data and a private-sector payrolls report overnight showed modest growth in the labour market.
Yet, markets were listless ahead of rate decisions in the euro zone and England later in the day and US non-farm payrolls data on Friday, all of which could provide further clues on how far the US mortgage crisis has affected these economies.
The dollar pulled further away from its record lows. The yen weakened to 116.70 per dollar, showing investors were returning slowly to risky assets and overcoming their fears of a sharp economic slowdown in the United States.
"We consider this week a short-covering of the post-FOMC heavy dollar selling," Philip Wee of DBS Bank said, referring to the Federal Reserve's half point rate cut on September 18.
"Currencies have rallied with equities on hopes for another US rate cut at the next FOMC meeting on October 31," he said. But the strong readings in employment indices this week point to a firm jobs report on Friday, and those expectations for a rate cut could be dashed, Wee said.
Regional stock markets weakened on Thursday after losses in the chip sector, and currencies such as the Singapore dollar and Malaysian ringgit shed a quarter of a percent each. The Korean won fell 0.4 percent to a one-week low of 918.4 per dollar on suspected central bank dollar-buying intervention, and after the vice finance minister warned the government would take action against volatility. The Indonesian rupiah kept to a narrow range near 9,140 per dollar, a quarter of a percent weaker on the day.
DBS's Wee agreed with several other analysts that it was too early to call that an end to the dollar's weakness, because the housing market slumps would continue to be a drag on the economy. Elsewhere, the peso moved between 45.20 and 44.95 per dollar, on either side of Wednesday's close at 45.14, before closing local trade at 44.95.
Six out of 10 economists polled by Reuters expect a cut of at least 25 basis points in the Philippines central bank's overnight rates. The stock market has been rising and is close to record highs on expectation the central bank will cut rates, after the Federal Reserve rate cut. But others point to rising commodity prices and capital inflows as reasons the central bank will defer the easing.
"Robust domestic demand growth and rapid money supply growth pose upside inflation risks, while the pass-through from the strong peso and the softening global outlook create offsetting downside risks," Morgan Stanley strategist Stewart Newnham said in a note. But most analysts expect the rate decision to make little difference to market bullishness on the peso.
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