What factors are driving the dollar in Uruguay while it is declining globally?

Cichevski argued that “the dynamics of the exchange rate in Uruguay It is influenced by domestic factors, in particular by the uncertainty associated with a possible approval of the social security plebiscite, which validates a more expensive exchange rate.”

“That explains why it did not weaken and why we are seeing a sharp increase in the number of amounts operated. That is to say, not only is the exchange rate going up, but also the amounts traded on a daily basis are higher than what happens in general,” he revealed.

The same line was expressed by the Director of Urraburu e Hijos Stockbroker and President of the Montevideo Stock Exchange (BVM), Ángel Urraburu, who told this newspaper that the situation is “fundamentally linked to the social security plebiscite, because there are no elements in the market that make one think that the dollar has to be worth more on its own merits.”

“He fiscal deficit is controlled, the level of debt It is appropriate, it was placed bond to 2060 with amazing fluidity, which is something very positive that speaks to the confidence and security of investors,” he said.

The concern of big investors

On the other hand, Urraburu stated that “one tends to think about savers, but it affects investors who manage significant amounts, “which are the same ones who bought the bond at 2060 in dollars.”

“These large investors, who take on a very high percentage of debt, are the ones who are nervous and worried about how the polls are going. If the plebiscite turns out in favor, it could be devastating and they perceive it with that degree of seriousness,” explained Urraburu.

Along these lines, he pointed out that “while the exchange market operated more than expected, it had a counterpart in the stock market, with absolutely enormous figures in international markets” and illustrated: “They are international funds that get rid of Uruguayan papers expressed in nominal weights or in Indexed Units (UI) to switch to dollars.”

“The flip side is the AFAP, They are buying these papers and selling them to large international funds, and, even if they are in pesos or UI, they are liquidated against dollars and put pressure on a small market that cannot supply the offer,” he said.

In October, the plebiscite will be more relevant than the candidates

In turn, economists considered that the result of the plebiscite that promotes the PIT-CNT will be of greater importance than the vote between candidates. “It is much more relevant because the three times the candidate won Broad Front There were no surprises in the exchange market,” Urraburu said.

In this regard, he clarified: “There may be a little, but minimal. And more so if it is confirmed that the minister will be Gabriel Oddone, “because it generates a lot of confidence and the markets have a lot of faith in it. On the other hand, the plebiscite is a leap into the void and an adventure that is very difficult to tolerate.”

Likewise, Cichevski said that the discussion had already been settled. “A change in the situation is not anticipated.” economic policy, “whether the opposition or the current government wins. This has already been validated by the changes in government and the risk rating agencies know it,” he said.

The CPA Ferrere representative insisted that “the main risk in economic matters, which ends up being the uncertainty, is the eventual approval of the plebiscite, because it would generate a negative impact of such magnitude that it requires taking precautions and it is reasonable that a bond in pesos is riskier until the situation is cleared up.”

Could the Fed’s decision impact the value of the dollar in Uruguay?

Putting the spotlight on the first rate cut of the Fed In more than four years, Cichevski said that the decision was “striking” because it was 50 basis points and not 25 and indicated that it was a “confirmation” of the reduction cycle, but considered that “it was already incorporated into asset prices since mid-August, when the inflation data in the United States was known and the dollar at a global level began to weaken.”

For the economist of CPA Ferrere, the reduction announced by the president of the Fed, Jerome Powell, It represents “another sign of monetary relaxation” and he maintained that “these cycles of a weak dollar at a global level due to a lax monetary policy usually weaken the dollar in Uruguay also”.

Jerome Powell, Chairman of the Fed.jfif

Fed Chairman Jerome Powell has predicted a easing cycle in US monetary policy.

“In general, a reduction in the rates It is good news for Uruguay because of the impacts on the exchange rate and because it implies lower financing costs, for example to finance fiscal deficit or greater incentives to receive Foreign Direct Investment (FDI),” he said, and compared: “High interest rate cycles are bad for emerging countries and Uruguay is no exception. In that sense, it is good news that we are at the beginning of the end of the last cycle of contractionary monetary policy.”

“As the dollar weakens globally, there may be a rebound in commodity prices.” commodities and this should have a downward impact on the exchange rate in Uruguay. That is, as the uncertainty associated with the plebiscite clears up, a coupling to the trend of a slightly weaker dollar could be verified,” he analyzed.

Urraburu made a similar statement, saying that “after the Fed’s decision, the dollar is expected to continue to decline,” although he clarified: “I’m not saying it will be abrupt, but the trend is for it to ease and weaken globally.”

However, it made a decline in the local exchange market to the referendum next month. “The Fed’s decision marks a downward trend worldwide in the medium term and will counteract something. If the issue of the plebiscite dissipates, even at the end of October, and the trend continues in USA, “The dollar will probably experience a more significant drop in Uruguay,” he said.