Political and fiscal changes in the region have led to the dollar strengthening against the main currencies of Latin America.
Photo: Bloomberg Agency
Since June 11, dollar began an escalation that has kept it above $4,100. This after accumulating months in which it was moving between $3,800 and $3,900. What led you to this abrupt change?
As explained by Jackeline Piraján, who is an economist at Scotiabank Colpatriathe rebound in the greenback occurred after the political shock left by the presidential elections in Mexico, and not only in that country but in the majority of Latin American markets.
Occasionally in Colombia the results delivered by the Treasury with the Medium Term Fiscal Framework, which reflects the fiscal challenges that the country has. All of this has caused many investors to operate cautiously, collecting their profits and withdrawing their investments.
To the extent that there are fewer dollars circulating in the national territory, its price against the local currency will be higher, and what we have registered in recent days is a dollar that has established itself above $4,100. For most of the analysts consulted by this means, this will be the “new normal” for the greenback, until another important event that could move it is recorded again.
As detailed by David Ballen, who is the director of Analysis and Strategy at Casa de Bolsa SCB, the current price of the dollar adheres more fairly to the reality of the markets, precisely because of this wave of uncertainties that has permeated among investors. It is for this reason that his bets also point to the dollar remaining above the $4,000 barrier.
However, we must not lose sight of the fact that in the short term there are two important dates coming up that could imply a new shake-up for the dollar. Jeisson Andrés Balaguerathe executive director of the investment bank Values AAA, recalls the importance that the decision made by the central bank of the United States (Fed) regarding interest rates continues to have, since if a reduction is achieved, investment is encouraged. and, therefore, greater chances of the dollar falling against the Colombian peso.
The next meeting of the Fed It is scheduled for the end of July. However, many forecasts indicate that the bank’s first reduction, after many months of keeping rates stable, will occur in September or December.
Others more skeptical, such as Diego Franco (Head of Investments at Franco Capital Asset Management), consider that this year the Fed will not give in, since the fight against inflation remains latent.
For him, the first rate cut in USA It will be seen in 2025, and it will not be so much due to the good performance of inflation, but rather due to the pressure that the threat of recession will generate. In short, the board of directors of the central bank will end up prioritizing the reactivation of the economy over the cooling of the shortage, thus avoiding greater discomfort for the macroeconomy of that North American country.
In Colombia, the Bank of the Republic will have its next meeting this Friday to decide, once again, whether to maintain or lower interest rates. The reduction in inflation in the country has allowed the board to continue a path of deceleration in its monetary intervention. However, this has lost its pace in recent months, which could lead to rates being maintained or reduced to a lesser extent.
Regarding this, Piraján specifies that “we are not expecting the decision regarding rates in Colombia to have a significant impact on the dollar, but rather to preserve this laterality.”
If this relationship continues, that is, the US tying its rates while Colombia lowers them, it will be very difficult for the dollar to return below $4,000. Based on this, their bet is that $4,100 has become a structural value for the dollar, so that would be the new threshold at which it would move in the coming months.
It must be remembered that these forecasts are made based on the main variables that are currently recorded, so they could be strongly affected to the extent that events occur (both national and international) that could imply a new shock in the dollar.
For example, if the conflict in Middle East reaches a new level in its escalation, it is very likely that appetite for the dollar as a safe haven asset will increase. This would increase its demand, making it scarce and, therefore, more expensive.
The reforms or other policies adopted by the country could also favor or affect the interests of investors, which would lead them to inject or cut their resources in the nation.
We must also take into account other variables that maintain their impact on the dollar, such as the country’s international trade (imports and exports), as well as the receipt of remittances which, in 2024, have reached historical highs.
Finally, mention that an expensive dollar has winners and losers in Colombia. Those who receive payments in dollars win, especially those who export goods or work with companies or platforms that pay in this currency; Those who assume costs intermediated by the greenback, such as importers, lose.
If you wanted to make a balance, you could say that there is more lost than gained, since imports in Colombia continue to have a greater weight over exports. If we also take into account that an important part of these are inputs for agricultural production, as well as textiles and other commonly consumed goods, an expensive dollar ends up transporting these extra costs to the pockets of Colombians, that is, more inflation.
