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Peso rallies to three-year high as US economy contracts

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BRENT LEWIN/BLOOMBERG

THE PESO logged a fresh three-year high versus the dollar following the US economy’s contraction in the second quarter.

The local unit closed trading at P49.095 per dollar, gaining 5.5 centavos from its P49.15 finish on Thursday, data from the Bankers Association of the Philippines. The market was closed on Friday in observance of Eid’l Adha.

Yesterday’s close is the peso’s best in more than three years or since the P48.95-per-dollar finish on Nov. 11, 2016.

The peso opened Monday’s session at P49.15 versus the dollar. Its weakest showing was at P49.185 while its strongest was at P49.07 against the greenback.

Dollars exchanged reached $568.65 million on Monday, down from the $809.55 million on Thursday.

The local unit’s strength came after the release of the data on US gross domestic product (GDP), a trader said.

“The peso strengthened amid the lingering market impact of a sudden contraction in US economic activity for the second quarter of 2020,” the trader said in an email.

The US Commerce Department on Thursday reported that GDP shrank 32.9% in the April to June period, the steepest fall since the government started keeping records in 1947, according to Reuters. With the US economy already shrinking by five percent in the first quarter, the country is officially under a technical recession or two consecutive quarters of contraction in the economy.

The Bureau of Economic Analysis under the Commerce Department blamed the output decline to measures imposed to arrest the spread of coronavirus disease 2019 (COVID-19).

The local unit also strengthened after the reimposition of the modified enhanced community quarantine (MECQ) in Metro Manila and nearby provinces as this “could reduce demand for dollars to pay for imports” as seen in the lockdown earlier this year, said Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort.

President Rodrigo R. Duterte responded to the call of medical frontliners to put Metro Manila as well as nearby provinces Laguna, Cavite, Rizal, and Bulacan under stricter restrictions for two weeks starting Aug. 4 to Aug. 18. Several health professionals had called for a two-week “time out” to prevent the collapse of the healthcare system as infections continued to surge.

COVID-19 cases in the country rose by 5,032 to 103,185 on Sunday, the Health department reported. More than half of the infections are in Metro Manila.

For today, both Mr. Ricafort and the trader expect the peso to move between the P49 to P49.20 levels. — LWTN with Reuters





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