He dollar was one of the great economic issues of 2023 in Uruguay, more than for his depreciation —minimal compared to the value lost during 2022—due to the inability to correct the exchange delay which, in the country, had an impact mainly in terms of competitiveness of exports. As the first exchange day of 2024 opens, questions arise about what could happen to the foreign currency in the coming months.
The forecasts are diverse but, fundamentally, they agree on one aspect: the international context will be decisive in setting the course of the local exchange market, which, in any case, does not foresee a great performance in terms of dollar. The decisions of the United States Federal Reserve (Fed) They will be key in this sense, as they influence the value of the currency globally.
The dollar in 2023 followed the pace set globally
Unlike what happened during 2022, when the dollar plummeted 10.35% while the US currency in the world had a positive behavior – a situation that the government attributed to the record foreign exchange income by exports and investments—last year was more aligned with what happened in the international markets.
“In the year 2023 the exchange rate in the Uruguay followed almost exhaustively the behavior of the dollar in the world, there were no specific deviations in the Uruguay, “Perhaps there was some deviation in 2022 but not in 2023, that is, the behavior was to be expected and marks a precedent to analyze the present and the future,” he considered. Angel Urraburu, president of the Montevideo Stock Exchangein dialogue with Ambit.
This can be seen in the fact that both locally and globally, the currency had negative results.. If analyzed more closely, the depreciation was in similar percentages: in Uruguay, he dollar fell 2.62% in relation to the last exchange day of 2022; Meanwhile he dollar index —the indicator that compares the US currency against six other world currencies—accumulated an annual decline of 2.14%.
For the economist and financial analyst, the key to any reading or balance is in the fact that “at the moment in which the interest rates in USA were at the highest point, the dollar “He did not have the necessary strength to reevaluate himself.” The market, which expected some type of recovery in the exchange rate—even despite the permanent downward adjustments to its expectations—did not obtain the projected results.
“During the first part of the year there was a more marked trend of appreciation, which was then reversed in the last quarter, maintaining relatively stable about the end of the year,” he said, for his part, Giuliano Cantisani, economist CPA Ferrere; For whom, likewise, “the variation of the Uruguayan peso is in the middle of the table” compared to countries in the region.
The diagnosis of what factors were behind this behavior is also similar among the specialists consulted by Ambit: for Cantisani, the “coupling Uruguayan Peso to international trends occurred, in part, thanks to the lower pressures of the monetary politics, as well as for a normalization of currency flows.”
According to Urraburu, all the factors linked to the United States economy were decisive in thinking that there were no reasons for “the dollar was going to take off.” Although the president of the Montevideo Stock Exchange considered that other measures could have been taken in terms of monetary policy, he did not agree that this would have been the best option: “The price of dollar is fixed externally, for reasons that are mostly exogenous,” he said, against “trying to alter that with a rates policyas was permanently claimed.”
In short, the behavior of dollar in Uruguay During 2023 it was inevitable.
Weakness will be a trend for the dollar in 2024
2024 does not appear before the eyes of analysts as a year in which the trend changes for the dollar neither at the international level nor at the local level. In fact, as Urraburu pointed out, “the tendency toward dollar weakness It is going to come strong from now on, not with a resounding fall but with a constant one.”
Key to this will be the start of the cut in reference interest rates in USA, which the Fed has already announced will be around 75 basis points throughout the year and which investors are already predicting for March. “At a global level, the US rate cut is going to weaken that country’s currency, as happens permanently with any country that lowers interest rates,” said the president of the Montevideo Stock Exchange, in that sense.
From CPA Ferrere, meanwhile, the forecast is not so decisive and they expect “a moderate depreciation of the weight” for the year. “At the international level we hope that the dollar remains relatively stable. While the Fed’s rate cuts could lead to a weakening, the good performance of the economy USAparticularly in relation to other advanced economies, would partially offset this,” Cantisani explained.
The BCU, once again key at the local level
For both economists, the monetary policy of the Central Bank of Uruguay (BCU) will be key at the local level to counteract or offset the impact of the Fed’s measures on the value of the dollar. This, in a context in which the president of the entity, Diego Labat, He already announced that the end of the cut cycle could be closer than expected by some market players.
In this regard, Cantisani recalled Labat’s statements, but considered that “it remains to be seen how much the aim disinflationary or if, on the contrary, pressures on competitiveness will cause a more lax position to be taken.”
This position can be understood in the latest decision of the Monetary Policy Committee (Copom) which, at the meeting on December 29, decided on a cut of 25 basis points – to leave the Monetary Policy Rate (MPR) at 9%—despite the fact that general projections indicated that rates would remain unchanged.
For Urraburu, the monetary policy of Brazil —with a half-point drop in the rate CELIC at every meeting of the Brazilian Copom—may be the way forward for the BCU. Although he pointed out that the scenarios are different, he does not understand how the best decision for “Uruguay interrupting the process with a reference rate that is 4% above the inflation, which has shown a very marked downward trend.”
“I think we have to counteract at least somewhat, a little, the trend that comes from abroad and lower local market rates a little more,” concluded the financial analyst.
Source: Ambito
