What is expected of the behavior of the dollar in May?

What is expected of the behavior of the dollar in May?

He dollar It still cannot recover its value against the peso despite the measures taken by the Central Bank of Uruguay (BCU) in order to strengthen the foreign currency and shore up the competitiveness of the local economy in international markets. With the new month, there are expectations of the impact that the drop in benchmark interest rates and the improvement of the credit rating by the rating agency will have Standard & Poor’s (S&P). What is expected of the dollar for May?

April closed with some relief, considering that, at the last moment, the behavior of the dollar managed to accumulate a positive balance. In this way, on the last Friday of the month it rose 0.43% and ended the day at 38,783 pesos.

This meant a positive monthly balance of 0.35%, although it was not enough to break the floor of 39 pesos. This happened after a short-lived rise in the US currency after the BCU announced its decision to lower the Monetary Policy Rate (MPR) —a measure highly requested by the productive sector as a tool to balance the exchange rate and improve Uruguayan competitiveness— and a consequent free fall in the price, which came to foresee a red April.

Finally, the last day of the month saved a new monthly period to the downside. However, expectations for the remainder of the year are not optimistic about a revaluation of the dollar.

One dollar down globally

The prospects for the dollar are deflationary, as various professional investors point out given the strong possibility that the United States Federal Reserve (Fed) begin, finally, a policy of relaxation of the reference interest rates. At the end of the year, most specialists expect the international reference rate to be at 3% or less.

In this sense, the dollar is expected to fall because the projected rate of return is too high. Added to a possible appreciation of alternative currencies such as the yuan, the value of the US currency has a downward path ahead of it.

In Uruguay, expectations are not positive either: in the last Economic Expectations Survey disclosed by the BCU, the market lowered the local price of the dollar for this year. The median was 41.30 pesos, compared to a median of 41.50 pesos that he projected in March. In turn, the expected average fell further, from 41.50 pesos to 41.28 pesos.

This occurs even with the Central Bank’s measure of lowering the TPM —contrary to what happened in the region—, whose main intention was to tend towards a greater equilibrium of the exchange rate in a context of exchange rate delay.

What can happen in May?

Again, projections are not optimistic. The uptrend The post-measure of the BCU lasted just one day —with a rise of 0.12% on Thursday the 20th, which managed to break the 39-peso floor for the first and only time since mid-March—, and the forecasts were not that it would hold , while movements in the TPM can temporarily affect the nominal exchange ratebut not him real exchange rate.

In any case, this increase was not observed in its maximum splendor either, with barely two days of rise after the announcement of the BCU.

Likewise, although the news about S&P’s historic credit rating upgrade has really positive effects, this measure will also mean a weight appreciation: While there is greater support for the country’s economy, investor confidence in local titles is also improving. Although it is estimated that this will have a momentary impact.

However, it can be foreseen that May will not have big rises —quite the opposite. Meanwhile, the dollar accumulates a fall of 3.21% so far in 2023.

Source: Ambito

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