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Sol Rises to Three-Year High on Bets Peru Can Withstand Slowdown

Peru’s sol advanced to a three-year high on bets the Andean country’s policy makers will take steps to bolster the economy should global growth stall.

The sol strengthened 0.1 percent to 2.7260 per U.S. dollar at today’s close, from 2.7280 yesterday. The currency earlier touched 2.7245, its strongest level since April 2008.

Peru has an array of fiscal and monetary tools it can deploy if the global outlook worsens, central bank President Julio Velarde told lawmakers yesterday. Though the threat of a global recession has grown, economic activity in Peru remains “vigorous,” Velarde said.

“Local agents see Peru is in a solid position,” said Antonio Diaz, a currency trader at Banco Internacional del Peru in Lima. “Despite the external crisis, you don’t see a strong demand for dollars or changes in portfolios or positions. There was a big flow of dollars from remittances and exports in the first half of this year.”

The sol has gained 3.7 percent since April 29, the best performance among 25 emerging-market currencies tracked by Bloomberg.

The Andean country’s central bank forecasts gross domestic product rising 6.3 percent this year, which Velarde said will be one of the highest in the region. The figure is below the bank’s June 17 forecast of 6.5 percent.

The central bank bought dollars in the spot market today for the first time in a week to temper the sol’s rise. The bank purchased $110 million paying an average 2.7250 soles per dollar, it said on its website.

The sol also gained amid speculation U.S. President Barack Obama’s economic stimulus plan will boost demand in Peru’s second-biggest export market.

Obama will ask lawmakers tomorrow to support a plan to inject $300 billion into the economy mainly through tax cuts, infrastructure spending and direct aid to state and local governments as he seeks to curb U.S. joblessness. China overtook the U.S. as the biggest destination for Peruvian exports in the first half of this year as American companies cut back purchases on slower economic activity.

The yield on the nation’s benchmark 7.84 percent sol-denominated bond due August 2020 was unchanged at 5.43 percent, a 10-month low, at 4:53 p.m. in New York, according to prices compiled by Bloomberg.

Bond yields may continue to decline this month as the central bank keeps its benchmark rate on hold for the rest of this year amid slower domestic growth, said Inteligo SAB, a Lima-based brokerage, in an e-mailed report today.

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