THE PESO strengthened to a new three-year high versus the greenback on Thursday as investors have already priced in the economy’s contraction in the second quarter.

The local unit ended trading at P49.05 against the dollar on Thursday, gaining 2.50 centavos from its P49.075 close on Wednesday, data from the Bankers Association of the Philippines showed.

Thursday’s finish is the peso’s best in more than three years or since its P48.95-per dollar close on Nov. 11, 2016. The peso opened Thursday’s session at P49.06 per dollar. Its weakest was at P49.09 while its intraday best was at P49.01 against the greenback.

Dollars traded decreased to $587.1 million on Thursday from the $699.71 million seen on Wednesday. The local unit’s strength showed investors already expected a deeper contraction in gross domestic product (GDP) in the second quarter, said Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort.

“The peso closed stronger as the weaker GDP is already priced in [by the market] and they considered older data with month- on-month recovery such as manufacturing and exports.

The economy shrank by 16.5% in the second quarter, worse than the 0.7% drop in the first quarter and a reversal of the 5.4% growth in the same period in 2019, data from the Philippine Statistics Authority (PSA) released Thursday showed. This means the country has already entered a technical recession as it has logged two consecutive quarters of economic contraction. The 16.5% contraction is the deepest so far for the country based on available PSA data and is worse than the 10.7% decline in the third quarter of 1984.

Meanwhile, a trader said the market preferred the peso as they await economic data from the United States. “The local currency appreciated on expectations of elevated initial jobless claims report this Thursday,” the trader said in an e-mail.

Reuters reported that initial claims for unemployment benefits rose by 12,000 to a seasonally adjusted 1.434 million in the week ending July 25, data released by the US Labor department showed. For today, Mr. Ricafort sees the peso ranging between P48.95 to P49.15 versus the dollar while the trader expects the local unit to move around the P49.00 to P49.20 band. — L.W.T. Noble with Reuters