THE PESO strengthened against the greenback on Tuesday, its last trading day for the year, backed by year-end flows and positive market sentiment on the legislation of the 2021 budget.

The local unit ended trading at P48.023 a dollar, gaining 3.20 centavos from its Monday close of P48.055, data from the Bankers Association of the Philippines showed.

The peso also strengthened by P2.612 from its finish of P50.635 per dollar on Dec. 27, 2019, last year’s last trading day, and by P2.662 from its performance on Jan. 2 when it closed at P50.685 versus the dollar.

The currency saw its weakest at P48.27 a dollar during the day, while its strongest was at P48.011.

“The peso closed stronger from increased market volumes on expected year-end dollar flows and market transactions done today,” a trader said in an e-mail.

Dollars exchanged increased to $731.25 million from $507.38 million on Monday.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the timely approval of the P4.5-trillion national budget also boosted market sentiment and backed the strengthening of the peso.

President Rodrigo R. Duterte signed on Monday the 2021 national budget, which is 10% higher than the P4.1-trillion programmed for 2020. Next year’s budget will continue the government’s aggressive infrastructure drive in a bid to support economic recovery. The program also allotted P72.5 billion for the purchase, storage, transport, and distribution of coronavirus disease 2019 vaccines.

In 2020, the peso’s strength was boosted by market sentiment on the accommodative stance of the Bangko Sentral ng Pilipinas (BSP), the trader said.

“The local currency’s appreciation was supported by the aggressive policy rate cuts, accommodative monetary policy and various lending programs from the US Federal Reserve, which has caused substantial depreciation on the dollar,” he added.

The BSP slashed rates by a total of 200 basis points this year to provide support to the virus-stricken economy. This has lowered the overnight reverse repurchase, lending, and deposit rates to record lows of 2%, 2.5%, and 1.5%, respectively.

Meanwhile, Mr. Ricafort said the slimmer trade deficit caused the appreciation of the local unit.

“Relatively slower recovery in imports that resulted in a narrower trade deficit led to the relatively stronger peso in the recent months,” he said in a text message.

Latest data from the Philippine Statistics Authority showed the trade deficit stood at $1.777 billion as of October, lower than $1.783 billion in September and the $3.573 billion seen a year ago. This came after imports shrank for the 18th straight month by 19.5% to $7.979 billion. — Luz Wendy T. Noble