Reaction Paper (FEBRUARY)

Peso down due to global risk aversion 

MANILA, Philippines—The peso fell on the first trading day of the week, mirroring the movement of currencies of other emerging markets, as political tensions in Egypt increased risk aversion globally, traders said.

The local currency closed at 44.27 against the US dollar, down by 17.5 centavos from Friday’s finish of 44.095.

Intraday high reached 44.19:$1, while intraday low settled at 44.35:$1. Volume of trade amounted to $773.55 million, down from $891.22 million previously.

Market players said the depreciation of the peso had to do more with external rather than domestic factors. They said risk aversion rose globally to adversely affect performance of currencies of emerging markets vis-à-vis the US dollar.

They said an uncertain environment usually prompted investors to shift funds into dollar-denominated instruments, considered the most liquid.

The peso dropped despite the government’s report released in the morning that the Philippine economy grew by 7.3 percent in 2010, the fastest pace seen in over 30 years.

Traders said, nonetheless, that the overall outlook on the Philippine economy has been positive and that the peso’s fall would likely be temporary.

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After reading this article, I felt happy and sad at the same time. As a consumer, I felt happy because as for my own perception, me and my family always go on vacation and when the dollar rate drops we would only pay less for the fare when it was converted into dollar. It was just a while when I felt happy because I was only thinking about my own perception but as to other Filipinos I felt sad because when the dollar drops it would affect the Philippine's economy. Risk aversion means being willing to pay money to avoid playing a risky game, even when the expected value of the game is in your favor. This explains that when the market players said the depreciation of the peso has something to do more with the external factors these external factors would be the political tension in Egypt. Moreover, I am positive that it would only be temporary.