The dollar is skyrocketing in Colombia. Only on Thursday of this week its cost jumped by 74 pesos and approached 4,176 pesos, the highest rate so far in 2024, which moves it further and further away from having been, until a few years ago. months, the most revalued currency on the planet and directs it towards the other extreme, that of the most devalued. And no wonder, the current price of the US currency, which reached a maximum of 4,193.5 pesos in the fourth session of the week, has not been observed since the end of October of last year and there are several factors that are putting pressure on it. upwards.
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In fact, the value of a single dollar in Colombia has increased more than 412.5 pesos in the last three months, from the minimum rate registered on March 10, 3,763.43 pesos, amid pressures coming from the abroad and from the local environment itself, say foreign exchange market analysts consulted.
The jump made this Thursday by the US currency was mainly due to higher interest rate differentials as other major economies begin to cut rates and to the mixed signals sent by the labor market in the United States, which registered fewer requests for subsidies. , as the two external factors with the greatest pressure.
While on the local side, the rebound in imports of 18.1 percent, which increased the trade balance deficit, also put pressure on the exchange rate.
“Although the movements of the pair currencies in the region were mixed, with a Mexican peso appreciating given the ministerial election of (Claudia) Sheinbaum, which fuels market optimism and the Brazilian real showing quite strong appreciation movements, The trend of the local currency (peso) continues the upward path, which is influenced by the strength of the US dollar and import data that exceeds market expectations“, indicated the analysts of the commission agency Acciones & Valores.
‘equila’ effect
With the observed advance of the dollar in the Colombian market, the peso is now among the currencies that have lost the most ground against the US currency and many market analysts agree that a high percentage is associated with the results of the recent elections in the Aztec country.
Taking into account the closing rate of the day on Thursday, after the Japanese yen (12.65 percent), the Brazilian real (12.39 percent) and the Mexican peso (8.34 percent), the Colombian currency It is among the most devalued currencies with 7.76 percent so far in 2024.
Thus, the probability that the dollar will return, at least to around the level of 3,760 pesos observed in March of this year, is complicated under the current conditions of both internal and external markets.
Juan David Ballén, director of Analysis and Strategy of the brokerage firm Casa de Bolsa, maintains that in its last meeting, the central bank of the United States, the Federal Reserve (Fed), indicated that it may not reduce the rate as much as expected in principle.
The ruling party Claudia Sheinbaum made history by becoming the first woman to win a presidential election in Mexico after a day that resulted in a victory that exceeded the high expectations of the president’s movement, Andrés Manuel López Obrador.
Photo:EFE
This announcement, according to the analyst, has attracted investors towards the dollar, especially because emerging countries have been reducing their interest rates. Besides, Fiscal uncertainty in the region has increased following the results of the presidential elections in Mexico, and the Colombian government has also faced difficulties in meeting the fiscal deficit. “This set of factors is what has contributed to the devaluation of currencies in Latin America,” including the peso, he explains.
Felipe Campos Salazar, Investment and Strategy Manager at Grupo Alianza, says, for his part, that the main force of the dollar’s ‘pull’ is the congressional elections in Mexico, mainly where the current government increased its majorities and support, which which increases the chances of passing the announced reforms, such as those of justice and regulators, where the first aims for judges to be elected by popular vote.
“That makes the Mexican peso explode and in Colombia the peso begins to move in the same direction as the Mexican currency. That explains 80 percent of the devaluationwhile internal elements, such as fiscal nervousness, have helped just as much, because the fiscal issue is the driving channel between Mexico, Brazil and Colombia, where there has been a lot of uncertainty affecting all markets,” says Campos.
Political uncertainty
Bancolombia also predicts that the peso will continue to weaken in the second half of 2024, to the point that the devaluation at the end of the year may be around 7 percent.
“The recent depreciation of the peso seems to be related to the political situation in Mexico, due to the results of the presidential elections in that country and the uncertainty regarding the approval of a reform of the judicial power in Congress, which unleashed nervousness in the markets , ended the strength of the Mexican currency and had impacts on the performance of currencies in the region,” explain the bank’s analysts.
And they add that “although the correlation of the Colombian peso is below its historical average, highlights the increase in oil prices of around 9 percent during 2024 due to a tight market, the persistence of geopolitical tensions in the Middle East, the resilience of the US economy and the slight signs of improvement in China, which have boosted demand for crude oil”, that is as far as external factors are concerned.
Oil prices have been on the rise in recent months, among other reasons, due to war conflicts and the global geopolitical situation.
Photo:Larry W. Smith. EFE
Locally, the downward pressure on the exchange rate comes from the external accounts, according to Bancolombia’s economic team.
They say, for example, that Record levels of dollar remittances, solid inflows of net foreign capital flows and the recent reduction in the current account deficit, thanks to the adjustment of the trade deficit and lower corporate profit outflows, have reduced dependence on the peso to the financial flows.
The expected reduction in the rate differential with the FED in the remainder of the year, the high political uncertainty, as well as the expectation of a possible reduction may be determining factors in the peso devaluation process in the second half of this year. sovereign rating.
“Although the low level of current account deficit could explain a dollar that remains strong, the normalization in the inflow of flows, local uncertainty and the exhaustion of the currency purchase and sale strategy (carry trade), as a result of the closing in the rate differential, would lead to a predominant trend of peso depreciation in the second half of the year,” they explain.
To the above elements, the BBVA Research analysts add that the expected reduction in the rate differential with the FED in the remainder of the year, the high uncertainty political, especially due to the discussion of structural reforms, as well as the expectation of a possible sovereign rating downgrade and a fiscal outlook with greater challenges.
For the economists of the Spanish entity, with this panorama it is clear to expect an exchange rate of around 4,155 pesos at the end of 2024, with an average for the entire year of 3,987 pesos.
For Bancolombia analysts, for their part, the exchange rate will average 4,140 pesos in the last quarter of 2024 and close to 4,012 pesos for the full year, which would mark a devaluation of around 7 percent compared to the 2023 average.
“In the medium term the currency would return to the depreciation trend, in line with the
normalization of monetary policy, the evolution of the inflation differential between Colombia and the United States and the incorporation of the uncertainty associated with local risks. This is how we estimate that the exchange rate would average around 4,240 pesos in 2025,” they point out.
