We are already entering the long-awaited holiday season and, with the mid-year bonus knocking at the door, Many families have already purchased their tickets and have begun to make reservations at hotels, parks and attractions.
However, After yesterday’s session, in which emerging currencies and especially the Colombian peso lost ground against the dollar, Many will have to rethink their travel budgets.
The price of the dollar closed at $4,023.22 yesterday, $62.39 above the Representative Market Rate, which was at $3,960.83, a value that had not been touched since December 6, 2023. During the day, the currency registered highs of $4,051.50, while the minimum was $3,970. 2,061 transactions were recorded for a value of US$1,441 million.
But what were the reasons for this adjustment? Many factors influence currency fluctuations, both international and local. Oil shocks and risk adjustments due to inflation in the United States are some of the aspects that mark the volatility of the currency. At the national level, the Government’s messages, the care of fiscal policy and monetary policy, are some factors that cause the currency to fluctuate.
International aspects
Yesterday, the price of the dollar opened higher minutes after the market knew the inflation figure in the United States and a day after the data in Colombia was revealed. The variation of the Consumer Price Index in the US was 3.3% in May, slightly below what the market expected.
“The dollar is strengthening throughout Latin America because inflation in the United States fell more than expected, which generates the expectation that the Fed will cut rates before the end of this year, favoring investments denominated in dollars,” said Juan David Ballén, director of analysis and strategy at Casa de Bolsa, SCB.
Inflation data showed that the core figure in the US also slowed for a second month in May, which is a signal to Federal Reserve officials who are looking for reasons to start lowering interest rates. However, Fed members voted unanimously to keep the federal funds rate in a range of 5.25% to 5.5%.
So far they have sent signals that for the remainder of the year they will only make one cut, but they foresee more reductions for 2025. Andrés Palacios, director of Elemento Alpha, added that another international factor for the dollar to remain on the rise is “the results of the elections in Europe, where the extreme right won. This may be generating a loss in value of the euro and strengthening dollar assets.”
Local context
Although the international context generates a great impact on the currency, National factors mean that this trend is felt more strongly in the region.
Palacios added that Colombia could lose weight in JP Morgan’s international fixed income indicescausing investors who adhere to these indicators to have to go out and sell Colombian securities and buy dollars.
But it is not a trend that is amplified only in Colombia, so far in June the emerging currency that has devalued the most was the mexican (-9.2%). The loss of ground against the dollar has continued since Claudia Sheinbaum obtained an overwhelming victory in the presidential elections.
The second emerging currency that devalued the most was the Colombian peso (-3.9%). At the local level, the peso also reacted to Colombia’s inflation data, which stood at 7.16% in May, which, although it showed a slowdown compared to the same month last year, had the same variation as in April.
Inflation came from 13 consecutive months of deceleration since March of last year when the rate measured by Dane went from 13.28% to 13.34%.
Juan Pablo Vieira, CEO at JP Tactical Trading, explained that the currency could even reach $4,400 at the end of the year. This is marked by “a government submitting a debt request, an excessive rate of expenditure, which is what worries internationals, income at the bottom and collections low.”
The market is attentive to the Medium Term Fiscal Framework
On Friday the Government must present the Medium Term Fiscal Framework. “Nothing positive is expected, the Government spoke of a cut of $20 billion, but it is a lot of useless spending and investment issues are on the floor,” said Juan Pablo Vieira, CEO at JP Tactical Trading. These national factors have influenced the upward trend of the currency: “the dollar worldwide has been losing ground, and here, on the contrary, everything is skyrocketing,” he added. This causes investors to be very cautious.
