Fiscal cliff agreement drives down dollar

Published: 2 Jan at 10 AM Tags: Euro, Dollar,

A rare agreement in Congress to increase taxes for the country’s richer households will mean that the US will not hit the fiscal cliff that threatened to push the world’s largest economy into recession. An appetite for riskier assets by traders has also seen the value of the yen plunge to its lowest level against the greenback since July 2010.

The euro has also hit its highest level against the Japanese currency since July 2011 hitting 115.65 yen, an increase of 1.1 per cent. The yen is also feeling pressure from promises by new Prime Minister Shinzo Abe that he will introduce fiscal measures to drive down the yen’s value and avoid deflation.

Traders are currently buying up the euro and avoiding the yen. The dollar, which is a safe haven currency like the yen, has also fallen against the euro to $1.3266. The Australian dollar is another winner rising by 0.6 per cent to $1.0461.

The White House and Congress have been battling to find a solution to the administration’s plans to introduce $600 billion worth of spending cuts and tax rises. Failure to reach a decision would have resulted in a fiscal crisis.

Avoiding the fiscal cliff will also be positive for the global economy.