Peso weakens on 'short-covering'

The peso fell further against the dollar as banks continued to buy dollars ahead of the Federal Reserve's policy announcement at midnight.

The local unit shed 10.5 centavos to end trading at 43.23:$1 versus Tuesday's 43.125:$1 close.  

“Most banks were short-covering and this pushed the market,” a trader at a local bank said, explaining that banks were rushing to buy the US currency in a bid to cover short dollar positions.

In a separate interview, a second trader said banks were in “defensive mode” ahead of the Federal Open Market Committee's announcement and “lightened short dollar positions.”

He also said there was strong dollar demand from oil firms, who still need to pay dollar requirements.

The first trader said investors stayed on the the sidelines as evidenced by light trading. “All eyes are on what's going to happen in the Fed meeting,” he said.

Wednesday's volume remained light at $850.35 million compared to the $889.02 million that changed hands a day previous.

Speculations over the Fed trimming its $85-billion bond buying stimulus, dubbed quantitative easing or QE, have eroded appeal of risky assets like the peso.

This resulted in investors turning to US instruments, weakening Asian currencies.

The Fed is currently meeting to discuss policy. Markets are waiting for Fed chairman Ben Bernanke's speech Thursday midnight in Manila, which will give clarity on the policy stand on the US' massive bond-buying program. — BM, GMA News