Peso closes stronger Thursday
MANILA, Philippines—The peso closed stronger on Thursday to break into the 42-to-a-dollar level, as financial markets worldwide welcomed the agreements made by European leaders on how to finally resolve the crisis in the Euro zone.
The local currency closed at its intraday high of 42.85 against the US dollar on Thursday, marking its strongest finish in about seven weeks, after European leaders delivered a commitment to come up with a firm set of anti-crisis measures.
The latest close was up by 34 centavos from Wednesday’s finish of 43.205:$1. Intraday low settled at 43.275:$1.
Volume of trade breached the $1-billion mark, amounting to $1.59 billion. This was up from only $747.79 million the previous day.
Traders said the appreciation of the peso came together with the rise of other emerging market currencies. They said the favorable development in the Euro zone prompted fund owners to invest in portfolio assets from emerging markets like the Philippines.
The development gave hope that the eurozone crisis would eventually be solved, thus increasing the chances for the global economy to post firmer recovery from the 2009 recession.
Traders said the peso and other emerging market currencies benefited from the favorable news, as investors believed that the ill-effects of the crisis in the West would be tempered.
The eurozone is one of the biggest export markets for emerging economies like the Philippines.
BSP Governor Amando Tetangco Jr. said the package of reforms announced by European leaders is expected to temporarily calm financial markets.
He said the BSP, like other central banks, is hopeful that all parties involved in the European agreement would deliver on their promised measures so that the road to recovery would finally be smooth.
“This morning we saw broad positive reaction from the market. But as they say, the proof of the pudding is in the eating,” Tetangco said.
World Bank Group president Robert B. Zoellick, who was in Manila Thursday, said in a press conference that the agreement made in the eurozone was good news and that the World Bank hopes this would lay the foundation for a full recovery of the global economy.
Included in the anti-crisis measures agreed upon by European leaders is to let holders of Greece’s bonds, led by banks, to absorb a 50-percent loss in their investments. European policymakers said banks have to take a hit or else Greece would be insolvent, something that would create worse economic effects.
Italy likewise committed to accelerate its debt reduction so that fears of a contagion of the crisis would be reduced.
Moreover, the International Monetary Fund is expected to provide more financial assistance to debt-ridden countries in the Euro zone to continue regaining confidence of investors.
The European Central bank likewise agreed to continue purchasing bonds from the secondary market to help inject needed liquidity.
European leaders wanted to contain Greece’s problem, aware of the adverse consequences to financial markets worldwide and to the global economy in general if said problem is left unresolved.
