In the prelude to the United States Federal Reserve (Fed) publish the minutes corresponding to the last meeting of the Federal Open Market Committee (FOMCfor its acronym in English), in Uruguay People are already beginning to think about the possible impacts of an announcement on the pause in interest rate increases in the North American country.
The anticipatory signals are explicit and implicit: in the first case, the governor of the Fed Christopher Waller He said the US central bank is in a position to watch and see what happens with the interest ratesas the restrictive conditions of financial markets are prepared to “do some of the work for us.”
In that sense, his statements pointed out that inflation control policies would no longer depend solely on the monetary politics of the agency, as long as the current slowdown in price increases continues, the inflation “it will basically return to the objective.” Therefore, it is possible to intuit that the previously announced rate increase may not finally occur.
Among the implicit signals—or not so implicit—is the reaction of the markets; above all, from Latin Americans, who had been strongly affected by investors’ preference for less risky options – such as dollar, on the rise due to the announcement of the increase in rates. Along these lines, the US currency fell globally today, while most of the currencies of Latin America showed gains, amid fewer fears of an upward variation in interest rates USA.
What can happen in Uruguay?
A possible pause in the increases in US interest rates may have, as a first effect, a slowdown in the recovery of the dollar globally which, in return, also impacts the correction of the exchange rate delay in the local market that has been advancing strongly in these first days of October.
In parallel, a dollar not as attractive as it has been in recent weeks could make investors look again with greater interest at the emerging market currencies; among them, the Brazilian real that Uruguay has as a reference market, which would allow the peso to return to a positive path.
This behavior could also be driven by the fact that the Central Bank of Uruguay (BCU) analyzes stopping cuts in the Monetary Policy Rate (MPR)although he also made it clear that there is still some room for some more reductions.
All of these factors can impact the behavior of the dollar at the local level, causing the US currency to reach the ceiling that analysts predict and ending – or, at least, considerably slowing down – the bullish rally that you have been experiencing in recent weeks.
However, we must also take into account the international context: the war between Israel and Hamas, as well as the support that the United States announced that it will provide to the Israeli State — which is added, in turn, to the support it already gives to Ukraine in the war with Russia-, They are factors that generate uncertainty in world markets. And in times like these, investors tend to look for haven of value rather than greater risks, so the dollar could continue to be a priority option even in the face of a not so contractionary decision by the Fed.
Source: Ambito
