Peso rises on news of US budget deal

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08:12 PM January 2nd, 2013

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By: Michelle V. Remo, January 2nd, 2013 08:12 PM

AFP FILE PHOTO/TED ALJIBE

MANILA, Philippines—The peso strengthened by 19 centavos on the first trading day of the year as the market cheered an agreement among American lawmakers that would prevent a fall of the US economy from the so-called “fiscal cliff.”

The local currency closed at 40.86 against the US dollar, up from the finish of 41.05 on Dec. 28, the last trading day of 2012.

Intraday high hit 40.85:$1, while intraday low settled at 41:$1.

Volume of trade amounted to $931.8 million from $677.3 million previously.

The appreciation of the peso came as fund owners manifested stronger risk appetite and demanded more emerging-market assets, including peso-denominated ones. The greater interest for the portfolio assets came following reports that US lawmakers have come up with much-needed amendments to laws that were supposed to have taken effect on Wednesday and if left intact, would have significantly and adversely affected the US economy.

Since the US economy is a key export market, such as for Philippine-made goods, and is home to many migrant workers, its recession could cause a drag on the performance of the Philippines and other economies

The laws that were supposed to have taken effect required steep increase in taxes of Americans and substantial cuts in government spending.

The tax hikes and spending cuts were severe, according to consensus, and could push the world’s biggest economy into recession.

Under the deal struck by US lawmakers, the tax hike covers only American earning at least $400,000 a year instead of the originally proposed $250,000.

Moreover, the scheduled spending cuts were deferred for two months, within which lawmakers would deliberate further on what more prudent measures to do to address its budget deficit.

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