Colombian peso under pressure and unable to sustain recent gains – London Business News | Londonlovesbusiness.com

Despite some positive economic data at the start of the week, the Colombian peso (COP) shows an inability to maintain a positive trend, reflecting the broad pressure affecting Latin American currencies in the foreign exchange market at the start of the week.

The COP has fallen by 0.26% against the US dollar, partially reversing the gains achieved last week. This dynamic occurs amid growing anticipation for the upcoming monetary policy decisions in both Colombia and the United States.

While certain indicators suggest a potentially more favorable economic outlook, the COP faces a complex environment of global and regional uncertainty. This situation leaves the Colombian peso at the mercy of market expectations regarding interest rates.

This week, the market is focused on the upcoming decisions by central banks. The Central Bank of Colombia (BRC) is expected to announce a 50-basis-point rate cut, while the Federal Reserve (Fed) could decide on a 25-basis-point reduction, possibly signaling a less accommodative stance for 2025. This divergence in monetary policies generates volatility and puts pressure on the COP.

The potential divergence between monetary policies in Colombia and the US, with the BRC potentially more aggressive in its monetary easing, could widen the interest rate differential and exert pressure on the COP. This factor, combined with global uncertainty, could contribute to the weakness of the local currency.

On the local economic front, relevant data on industrial production and retail sales was released. Industrial production grew by 1.10% in October 2024 compared to the same month last year, while retail sales showed a strong year-on-year growth of 9% in the same month, accelerating from 1.5% in September. This last figure, driven mainly by vehicle and home goods sales, represents the fifth consecutive month of growth following fifteen months of contraction, suggesting a potential recovery in domestic consumption.

However, it is crucial to acknowledge that the Colombian economy still faces complex and uncertain dynamics, with several indicators pointing to persistent risks. Despite the improvement in retail sales, the Colombian economy is at a critical juncture, with structural challenges such as the country’s fiscal situation.

Markets will pay close attention to the monetary policy decisions to be announced on Wednesday by the Fed and Friday by the BRC. These decisions will be crucial in determining the COP’s trajectory in the short and medium term.