Dollar in Colombia: what is the reason for its downward trend? – Financial Sector – Economy

The mix of factors such as the possible reduction in the pace of interest rate hikes by the United States Federal Reserve, a strong oil price due to the reopening of China and less internal uncertainty in the country led to the dollar in Colombia to lose 83 pesos this week.

(You can also read: Creg responds to Petro: ‘Regulatory bodies must be independent’)

The US currency was quoted lower all week except Friday and closed at an average price of 4,548.25 pesos, that is, about 500 pesos less than a little over two months ago, when it was above 5,000 pesos.

Since the beginning of the year, the Colombian peso has been the “fashionable” currency in the region, with a revaluation of more than 7 percent in this 2023.

Sergio Olarte, chief economist at Scotiabank Colpatria, the fall in the currency is due, in principle, to a global phenomenon. “The United States dollar has been weakening compared to the rest of the currencies due to expectations that the Fed and that the main central banks are already about to reach the end of the interest rate hike, which means that the world has a little more certainty and risk appetites can be reconfigured again,” he explained.

Even the possibility that no more oil contracts will be signed did not stop the fall of the US currency. According to Juan David Ballén, director of Analysis and Strategy at Casa de Bolsa, the news did not generate any impact because it was already discounted by the market. “Financial assets are not usually impacted twice by the same event. The dollar has fallen, but it is still above the level it would be if there were no uncertainty around the energy transition in the country, ”he opined.

Additionally, Colombia’s relative risk against its peers was diluted previously affected by political uncertainty. “We think that this does not have much more to go down; however, it will depend on the Fed’s decision on the monetary policy rate next Wednesday and, above all, on the message of whether they stop or whether they are going to continue raising their rates”, he pointed out.

In Colombia, the Bank of the Republic on Friday raised its monetary policy rate by 75 basis points, taking it to 12.75 percent. According to Alejandro Reyes, BBVA Research’s chief economist for Colombia, there were signs of the end of the issuer’s rate hike cycle.

Too Felipe Campos, Director of Investigations at Alianza Valorespointed out that Colombia was one of the most punished currencies in 2022, so now investors are seeing it as more appealing.

“They are looking for the cheapest currencies and they are taking advantage of the Colombian situation where they can buy public debt securities (TES) at 12 percent, hoping that inflation will eventually go down and they know that the currency is quite cheap. The punishment has been so great for Colombian assets that we are seeing an opportunity on the cheap,” he said.

ECONOMY AND BUSINESS