Why The Philippine Peso Keep On Getting Stronger

Sometime last year, I told my dad to dump all his dollars, exchange it for peso and put it in mutual funds.This was the time when the United States dollar to Philippine Peso Exchange rate was still P44+ to a dollar.

I don't know if my dad has listened to my advice, but now the exchange rate is now nearing P 40.00 to a dollar.

Some experts give the fearless forecast of 37 to 1 by as early as the 1st quarter of 2008. More conservative experts peg it at P 39 to a dollar by 2008 and most would agree that it would stay in the P 30 +++ level by 2009. Some give a higher than P 35 prediction while others give a lower than P 35.00 prediction.

However it is certain that the Philippine Peso will keep on getting stronger in the months to come mainly because of the following reasons:

1.)It's all about supply and demand - Basic economic principle, if demand is high prices goes up, when demand is low prices go down. In the same way, the more dollars there is, the cheaper it will be. Lesser demand for dollars also means cheaper dollars. The following reasons could give us an idea as to why the supply of U.S dollars is rising in the country:

a.) Increase in remittances sent by Overseas Foreign workers (OFW) -About eight million Filipinos, out of a population of more than 80 million, have left the country to work in other coutnries. There is an estimated 11 million Filipinos worldwide. As the number of Filipinos leaving the country for work increases, so does their remittances. This futher aids in making the Philippine Peso stronger.

b.) Influx of more foreign capital - According to the Central Bank, foreign direct investments (FDI) from January to September 2007 aggregated to US$1.9 billion. This is higher by 22.3 percent compared to last year's US$1.6 billion (In the same period). Most Investors now see that the Philippines is good place due to the following reasons, effective Fiscal reforms implemented by the government, strong economic fundamentals, our growing business process outsourcing potential and liberalization of mining laws. Most of the foreign investments in the country went to mining, real estate and manufacturing. This is the reason why the stock market remains to be bullish, the inflation rate is low, and the GDP is high etc. This results to a good business environment for investors. More investors are expected to come in as this trend continues. As more "hot money" flows into the country, the supply of dollar continues to increase.

c.) More Tourist, More money - Tourists spend a lot of money while they are in the country. According to the Department of Tourism, Tourist arrival increased 8.6 percent from last year. This means that there 2.5 million more tourists. With the influx of more tourists, the supply of U.S dollars is further increased in the country.

d.) Export earnings - Exports has also grown despite the appreciation of the Peso. However the growth in this sector is led by Business Process Outsourcing business and not the traditional business. The Philippines remain to be one of the favorites when it comes to Business Process outsourcing.

e.) Stability in politics - The Filipino people are tired of engaging themselves in activities to call for the resignation of the president. They are also sick of all these political bickering and political mudslinging. The government is maintaining a strong grip on the situation. This resulted to a more stable politcal environment.

2.) Weakness of the U.S dollar - The peso's appreciation also got a little help from the weakness of the U.S dollar. The U.S economic woes aggravated by its sub prime mortgage problem has been continuing to affect the U.S economy and further dragging the U.S dollar down. This gave the chance for the Peso to appreciate further.

The year 2007 closed with the Peso being named as the best performing currency in Asia. It is said to have gained about 18 % against the U.S dollar.This trend is more likely to continue and a stronger peso is very much more likely in the month or even years to come.

Article Source: http://www.search4allinfo.com

Do you want to know more about investments ? Zigfred Diaz regularly blogs about several topics including finances and investments. If you would like to know more economic forecast that could affect investment decisions, visit his blog.

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