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The Colombian peso surged this week to its strongest level in more than a year as the U.S. dollar weakened sharply on growing bets that the Federal Reserve will soon begin cutting interest rates.
After opening the week at 4,069.67 pesos per dollar, the greenback tumbled to 3,974.37 by Thursday, the day before the U.S. Independence Day holiday, a decline of 95.3 pesos in just four trading days. That 2.89% appreciation made the peso the best-performing emerging-market currency over the period, according to Bloomberg data.
Analysts say the primary driver behind this was a steep drop in the DXY dollar index, which measures the U.S. currency against a basket of major peers including the euro, the pound, and the yen. “The DXY’s weakness reflects rising expectations that the Fed will lower rates, reducing the appeal of dollar-denominated assets,” said John Torres Jiménez, an economist at Native Capital Management.
At the same time, Colombia’s central bank has maintained one of the highest benchmark interest rates in Latin America, drawing foreign investors in search of yield and supporting demand for pesos. The Banco de la República left its policy rate unchanged at 13.25% this month, signaling confidence in the country’s fight against inflation.
The peso’s outperformance recalls another period of dollar weakness in January 2017, when then-President Donald Trump’s election rhetoric roiled markets. In that episode, the peso appreciated 3.38% in five days, moving from 4,344.27 to 4,188.46 per dollar. Similar geopolitical friction awaits as Trump has announced new U.S. tariffs taking effect July 9, fueling fresh uncertainty.
Ratings agency S&P bolstered investor sentiment by affirming Colombia’s sovereign rating at BB+ this week, cushioning concerns over the nation’s fiscal outlook. Despite diplomatic tensions with Washington, most recently over visa restrictions, the peso’s rally showed no signs of faltering.
The US dollar’s decline carries clear benefits for Colombian importers and travelers who spend in pesos. Cheaper greenbacks lower the cost of U.S. goods and holiday trips abroad. “Importers can secure better prices on American merchandise, potentially passing savings along to consumers,” observed Pedro Julián Barrera Bolívar, dean of economics at the University of Santander, for El Colombiano. Tourists, meanwhile, will find their pesos stretch further when purchasing dollars for international travel.
However, exporters face headwinds as a stronger peso makes Colombian products less competitive overseas. Remittance-dependent families also stand to receive fewer pesos for each dollar sent home. And U.S. visitors to Colombia will find their travel budgets tightened by the peso’s relative strength.
Looking ahead, some strategists warn the peso may hover above 3,900 per dollar if global uncertainties persist or Colombia’s fiscal pressures intensify. “Diplomatic tensions and the country’s budget gap could trigger brief dollar rallies toward 4,000,” said Felipe Mendoza, a markets analyst at ATFX Latam. Markets will also be watching for Trump’s July 9 tariff implementation and any signals from the Fed on its next rate decision.
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