Title: Volatile Week for Foreign Exchange Market Ends with Uncertain Dollar Outlook
The foreign exchange market experienced significant volatility throughout the week, with the dollar fluctuating between record lows and highs. Amidst the ongoing political crisis faced by the Gustavo Petro administration, the representative market rate (TRM) witnessed a sharp rise, reaching 4.1448 pesos in just two days. However, contrary to expectations, the US currency surprised traders with a downward shift on Friday.
Closing the week with an average rate of 4,077.59 pesos, the dollar remained 67.2 pesos below the official rate for the day, according to data from the Colombian Stock Exchange’s Electronic Trading System (SET-FX). Analysts consider the dollar’s modest 154-peso gain this week insignificant given the prevailing political tensions in the country.
The trading range for the week fluctuated between 3,898 and 4,114 pesos, with the minimum trading price on Friday standing at 4,022 pesos, and the maximum at 4,136 pesos, as reported by SET-FX.
Juan David Ballén, the director of Analysis and Strategy at Casa de Bolsa, attributes the global rise of the dollar to the US rating downgrade, which heightened risk aversion and increased the demand for safe-haven assets. Following the downgrade from AAA to AA+, investors worldwide began liquidating their risky assets and turning to the dollar as a haven.
Felipe Campos, the director of Analysis and Strategy at Grupo Alianza, anticipates greater exchange rate stability in the future, considering that the country has already neutralized the “political bonus of the elections” and experienced a significant 1,000-peso dip in a short period. However, Campos cautions that risk aversion will continue to bolster the dollar until it subsides.
Additionally, market participants closely monitor the decisions of the Federal Reserve regarding interest rate hikes. The recent increase of a quarter percentage point to a range of 5.25 to 5.30 percent has compounded market uncertainty.
On a local level, José Ignacio López, the executive director of Economic Research at Corficolombiana, emphasizes the importance of whether or not the government of Gustavo Petro can successfully implement its reform package, including pension and health reforms, through Congress. The market anticipates a moderate approval of these reforms, leading to a correction in the exchange rate and other Colombian asset markets, such as public debt securities.
Overall, the intricate interplay of global risk aversion, interest rate policy by the Federal Reserve, and domestic political dynamics will continue to shape the foreign exchange market’s volatility in the coming weeks.
(Also read: What could be the impact of the Nicolás Petro case on Ecopetrol? Why has the dollar risen more than $246 pesos in just three days until this Thursday?)