The Colombian peso has experienced significant fluctuations against the dollar, reflecting broader economic trends and investor sentiment. On June 13, the Colombian peso depreciated notably, in contrast to other regional currencies. This depreciation was largely driven by new economic data from the United States, which led to a substantial increase in the value of the dollar.
During the trading session, the Colombian peso lost 3% of its value in just two and a half hours. Although it began to recover slightly, the dollar reached a high of $4,150 on Thursday morning. The previous day, the dollar had already marked its highest value of the year, setting the representative market rate (TRM) at $4,023. The market opened lower at $4,005, providing a brief respite, but by 8:10 a.m., just 10 minutes after opening, the dollar had surpassed the TRM. By 10:40 a.m., it was hovering around $4,150, a level it finally reached by 10:50 a.m.
A movement of this magnitude is unusual, as typical currency fluctuations are generally measured in one or two figures. The sharp increase of $150 in a single session highlights the volatility in the market. As things stand, it is anticipated that the TRM will reach $4,200 to the USD when trading resumes Monday, June 17.
This week, economic signals from the United States have created tension in the markets. Analysts had expected two or three interest rate cuts, but the Federal Reserve (FED) indicated on Wednesday that only one rate cut is likely for the rest of the year. This announcement has had a significant impact on the foreign exchange market, contributing to the dollar’s rise.
The local market is now focused on the upcoming publication of the Medium-Term Fiscal Framework (MFMP) by the national government. This report is expected on June 14 must confirm a significant reduction in government spending, estimated at COP$20 Billion. The administration of President Gustavo Petro will present projections of income and expenses, expectations for the fiscal deficit, public debt, compliance with fiscal rules, and the nation’s financing strategy.
The peso’s recent high of $4,150 per dollar is a level not seen since October 2023. After reaching this peak, the peso experienced a slight reversal. The brokerage house Acciones y Valores noted that, unlike other regional currencies that had shown depreciation and then reversed losses, the Colombian peso continued its upward trend. This trend is influenced by investor risk aversion due to local fiscal uncertainty and the anticipated impact of the MFMP on the country’s risk perception.
The publication of the MFMP is highly anticipated by investors and market analysts. The framework will provide crucial insights into the government’s fiscal strategy and its impact on the economy. The MFMP will include detailed projections of government income and expenses, as well as forecasts for the fiscal deficit and public debt. Additionally, it will outline the government’s compliance with fiscal rules and its financing strategy.
The recent volatility in the Colombian peso underscores the broader economic uncertainties facing the country. As the government prepares to release the MFMP, investors will be closely monitoring the potential implications for fiscal policy and economic stability. The peso’s performance in the coming days will likely be influenced by the details of the MFMP and new data on unemployment and other key economic indicators.
The Colombian peso’s recent depreciation against the dollar highlights the currency’s volatility and the broader challenges facing the country, including a deterorating security situation, and risk of credit rating downgrade. The upcoming MFMP report will be a critical in reshaping negative investor sentiment and the peso’s performance in the second half of 2024.
