Why is the dollar appreciating against Latin American currencies?
5:04
(CNN Spanish) --
The Colombian peso reached a historic low against the dollar on Tuesday by passing the ceiling of 5,000 pesos for the first time in its history.
While the Mexican peso reached its best level against the US currency since June of this year, amid a disparate closing of Latin American currencies at the end of the first day of November.
This is how the main Latin American currencies moved at the beginning of November.
The dollar vs.
the Colombian peso
The Colombian peso registered a new low at the close on November 1, hitting a historical ceiling of 5,014 pesos per dollar, which represents a fall of 1.54%, marked by international caution before the decisions of the Federal Reserve of the United States. United States and the local uncertainty derived from economic policies of the government of President Gustavo Petro, according to Reuters.
"The sharp rises in interest rates by the Fed, the risk of an upcoming recession and the loss of confidence due to political uncertainty, have resulted in a depreciation of the currency," he said in an In On note. Capital.
The Colombian peso has weakened 17% in 2022 under pressure from political uncertainty.
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According to In On Capital, the Colombian debt monitoring indices show "the strong effect the local environment has had on foreign investors, due to some announcements by some members of the Government that send mixed signals regarding investment protection in the country." .
Colombia's Finance Minister, José Antonio Ocampo, has insisted that the country will have "a responsible macroeconomic policy."
In mid-October, Ocampo said that the country will comply with the fiscal rule and there will be no exchange control with respect to the dollar, as Petro had insinuated days ago, and they will diversify exports in the country.
Ocampo said on October 27 that a slight decline in the price of the dollar that occurred last week is "a clear sign that the markets are believing in the country."
"I think it was rather that the markets made a mistake speculating against Colombia. Now they are believing in Colombia, which is what they should do," Ocampo assured before Tuesday's session when the dollar broke the barrier of 5,000 pesos.
Why is the dollar rising against the peso in Colombia?
Colombia, like other countries in the world, suffers from high inflation, as well as a historical devaluation of the peso against the dollar. This is due to both international and local factors, according to experts. (Credit: DANIEL MUÑOZ/AFP via Getty Images)
The fall in the price of the peso against the dollar is also being impacted by the future of the tax reform, which would impose additional tariffs of up to 10% on coal and up to 15% on crude oil when average prices exceed a certain level.
The reform will be voted on this week.
The Colombian currency has also been affected by uncertainty over whether Petro, who was elected on promises to abandon hydrocarbons, will reverse the ban on new oil contracts.
The Mexican peso appreciates and the dollar falls
This Tuesday, the Mexican peso closed at 19.7229 per dollar, with an appreciation of 0.36% compared to the Reuters reference price on Monday.
Earlier this Tuesday, the US dollar was trading at 19.6840 units, its best level since June 10, 2022.
The Mexican currency has been helped by a better global environment for risky assets amid reports that the Chinese government plans to lift strict Covid-19 restrictions in March that have stifled economic growth.
"Although it has not been confirmed by the executive, there are strong rumors that China would be forming a reopening committee with the aim of ending all confinement and mobility restriction measures in the country in March," CI Banco said in a statement. analysis note.
"This possibility has increased optimism among operators, favoring the purchase of higher-risk assets," he added.
This is how MMXN works, the cryptocurrency linked to the Mexican peso
The stable political outlook amid uncertainty in Colombia, Brazil and Chile, and attractive financial performance are encouraging a surprisingly strong Mexican peso, despite the country's tepid economic outlook, experts say. (Credit: PEDRO PARDO/AFP via Getty Images)
Barclays analysts, quoted by Reuters, have a favorable forecast for the closing of the price of the Mexican currency at the end of this year, predicting that it may even close at 19 pesos per dollar.
"Fiscal austerity, Mexico's attractiveness for 'nearshoring' and an investment universe that has become smaller - investors can no longer invest in Russia, divest in China, Turkey is inoperable - are factors that make Mexico look like a chocolate," said Gabriel Casillas, Barclays chief economist for Latin America, at a press conference.
However, another Barclays analyst, Erick Martínez, pointed out that the Mexican peso could experience episodes of volatility if the economic problems deepen in early 2023, although it would recover attractive levels as central banks relax their monetary policies.
"The dollar is overvalued precisely because the US Federal Reserve's monetary policy is in a tightening cycle," he said.
"As it eases, the dollar will return to its fair price," he added.
Barclays also projected Mexico's economic growth for 2023 of 0.9%, below the 2.5% expected for 2022, after a possible global economic recession during the first two quarters of next year, without any increase during the first and with a retracement of 0.1% during the second.
The Federal Reserve only cares about inflation.
Why is it bad news?
What happens in Brazil?
Meanwhile, the Brazilian real appreciated by 0.56% on Tuesday, reaching 5.14 reais per dollar.
Brazil's central bank said its inflation estimates remain consistent with its policy strategy, although risks remain elevated and call for continued vigilance and serenity, according to minutes of its latest policy meeting released on Tuesday, cited by Reuters. .
Following election day in Brazil, which gave victory to left-wing leader Luiz Inacio Lula Da Silva, the Brazilian real opened around 2% weaker on Monday and touched a one-month low, before reversing losses and rising. 0.5%, reported Reuters.
Traders said rising hopes for a more orderly transition after Sunday's ballot in Brazil were supporting markets.
President Jair Bolsonaro spoke out this Tuesday after his electoral defeat saying that he will continue to comply with the country's Constitution, but he did not directly grant victory.
Brazilian President Jair Bolsonaro speaks to the press two days after being defeated by Lula da Silva in the presidential runoff on November 1, 2022 in Brasilia, Brazil. (Photo by Andressa Anholete/Getty Images)
Shares in Brazil's state-owned Petrobras, which fell as much as 7%, trimmed losses to about 4%, while shares in state-owned lender Banco do Brasil SA sank about 5%.
In Argentina, the peso fell 0.24% to 157.27-157.28 per dollar in depreciation regulated by the central bank.
Chilean and Peruvian markets remained closed on Tuesday due to local holidays.
-- With information from Reuters.
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