That country’s CPI fell to 5% year-on-year and expectations of a final Fed increase in interest rates strengthen emerging currencies.
The last data of inflation of USAwhich showed a moderation until the 5% YoYand its correlate in the expectations of a possible pause in the increases in the interest rate of the Federal Reserve (Fed)generates a dollar weakening against other currencies and drives a drop in the exchange rate in Uruguay.
The CPI of the North American country registered a monthly increase of 0.1% in March, but year-on-year it fell for the ninth consecutive month, down 5%. In parallel, the exchange rate in Uruguay fell by 0.63% that same month, remaining at low levels, below 39 pesos, and has not managed to rebound so far in April.
Why does the moderation in inflation in the United States weaken the dollar in Uruguay?
The moderation of the indicator occurs in parallel to a slowdown in the rate of increases in the interest rate of the Fed in recent months. Meanwhile, the latest inflationary data is known precisely at a time when the continuity of the restrictive policy of the US body.
After the last increase of 0.25 points in the rates on March 22, the Federal Reserve announced that the reference rate will be around 5.1% towards the end of this yearthat is, 10 basis points above the current value.
Thus, expectations regarding a probable pause by the Fed after a possible final adjustment in May is producing a general weakening of the dollar internationally which, in turn, accentuates the strengthening of emerging currenciesAs the Uruguayan Pesoor as the case of Brazil where the exchange rate fell to 4.96 reais.
“We expect the US dollar to weaken as US growth and the interest rate premium relative to the rest of the world erode in the coming months,” he wrote in a note. solo marcelliInvestment Director for the Americas at UBS Global Wealth Management.
At the close of this Wednesday, the exchange rate in Uruguay was at 38,646 pesoswhich means a drop of 3.56% so far this year.
Although the Central Bank of Uruguay (BCU) has been maintaining a restrictive policy of high rates to mitigate the inflation, specialists consider that the moderate increase of the Fed leaves the Central Bank without much margin to continue postponing a correction, given that Uruguayan values would be well above those of the United States.
Source: Ambito
