The dollar closed at 38.928 pesos in the day yesterday, and returns to approach the floor of 39 pesos in its second consecutive day on the rise. Can you keep going up?
He dollar It went up again yesterday and is close to the floor of 39 pesos, although it has not yet managed to overcome it. Meanwhile, the moderate expectation grows on a gradual appreciation of foreign currency that manages to counteract its fall so far this year in Uruguay.
The dollar closed 0.17% above Tuesday’s trading, and thus reached 38,928 pesos according to the official price of Central Bank of Uruguay (BCU), on the verge of exceeding the floor of 39 pesos. So far in May, the US currency accumulates a positive balance of 0.37%.
This is due, to some extent, to the gradual effect of the last decision of the Monetary Policy Committee (Copom) to lower reference interest rates to make investments in pesos less attractive and, thus, achieve a greater demand for dollars in the market that would strengthen their price. And, in this way, start working on solving the exchange rate delay that mainly affects the country’s competitiveness.
It should be remembered that, according to the projections of the last Economic Expectations Surveythe BCU reported that market agents expect the dollar to close at 41.28 pesos on average for this year, which would imply an increase of 6.04% for the end of the calendar year.
So far, the ups and downs of May do not seem to move the price closer or further away from this perspective in the midst of a stable trend, when there is still more than half of the year to implement measures aimed at this value.
What can happen in the medium term to appreciate the dollar?
The most relevant measure that could be taken in order to raise the value of the dollar in the country concerns the monetary politics of the BCU. In this sense, it is very likely that the Copom re-implement a rate cut in June —unless the inflation figures skyrocket—, advancing on the easing announced at the end of 2022.
On this occasion, it is likely that the international context will also accompany the decision to, at least, put the contractionary policy on hold. The most important example is that of the United States Federal Reserve (Fed) that, although it recently re-implemented an increase in rates, it has already announced the possibility of suspending new increases in the short term. The inflationary indices of that country —which, for the first time since April 2021, were below 5%, a very positive sign— allow us to foresee that, indeed, this will happen at the next meeting of the CFederal Open Market Committee (FOMC).
However, it will also be necessary to take into account two other factors that may play against the appreciation of the dollar: on the one hand, the possible improvements in the credit rating by the agencies Moody’s and fitch —following the example of Standard & Poor’s (S&P)— that inflate market confidence in the peso; and, on the other, the situation of excess reserves experienced by the BCU, which may lead to a drop in the price of the US currency due to the greater supply than demand.
Source: Ambito
