Market Analysis by Quasar Elizundia, Expert Research Strategist at Pepperstone
January 31, 2025 –
“The Colombian peso has remained stable and gained ground against the U.S. dollar in recent sessions, amidst an environment of uncertainty that has permeated global markets. However, this calm should not be interpreted as a sign that the local currency is immune to the headwinds ahead.
Although the 0.2% appreciation of the Colombian peso in the most recent session may partly be attributed to the broad weakness of the dollar, it is crucial to analyze the underlying factors that could determine the currency’s trajectory in the short and medium term.
One key factor that deserves close attention is Colombia’s trade balance, whose deficit widened to $1.75 billion in November 2024. This increase, driven by a 13.7% rise in imports, raises serious questions about the sustainability of economic growth if exports fail to regain momentum.
Colombia’s trade dependence on its main partners, the United States and China, adds another layer of complexity to the outlook. The persistence of trade tensions and the challenging state of the Chinese economy represent latent risks for the local currency.
On the monetary policy front, the U.S. Federal Reserve has kept its interest rates unchanged, while the Central Bank of Colombia could continue cutting them this Friday. This monetary policy divergence could exert downward pressure on the Colombian peso.
U.S. GDP data, though generally disappointing, has been accompanied by a still robust labor market, creating uncertainty over the extent and timing of future rate cuts by the Fed.
Finally, we cannot overlook political factors and commodities, both of which could have a significant impact on the Colombian peso.Any changes in trade policies affecting U.S.-Colombia relations, as seen last weekend, could trigger selling pressure on the currency. Likewise, a sustained decline in oil prices, a major export product for Colombia, could negatively impact public finances and weaken the peso.
In summary, the Colombian peso is at a crossroads. While its recent stability provides a momentary reprieve, the global and local challenges demand constant vigilance. The trade balance, dependence on the U.S. and China, monetary policy, political factors, and commodities are key elements that could determine the future of the Colombian currency.”
Analysis by Quasar Elizundia, Expert Research Strategist – Pepperstone