Market agents got a nasty surprise this Tuesday, as the Consumer Price Index (CPI), which measures the cost of meeting basic needs, America’s results for January were better than expected,
Labor Department confirmed this Inflation in the North American country was 3.1% in the first month of 2024, a figure that exceeded the expectations of analysts, who had expected it at 2.9% Why is this important? Because this once again increases the price of the greenback in Colombia and the rest of the world.
It must be remembered that the US is also fighting against the exorbitant cost of living and to this end, the Federal Reserve (Fed) – the equivalent of the Bank of the Republic – has raised interest rates to the current 5.5%; Highest limit in 17 years. Based on this, the idea is to discourage borrowing for spending and thus reduce prices.
The monetary authority was winning the battle, as inflation rose to 9.1% in June 2022; A rate not seen since the 1980s. Looking at the current scenario, the Fed’s monetary policy has managed to reduce the CPI by 6 percentage points, but it still has to row the boat out to shore up 2%, which is the goal of maintaining Americans’ purchasing power. Determined to keep.
The side effect of the anti-inflation fight has been rally The position of the dollar in the world, although due to the internal situations the country is going through, it is felt stronger in Colombia than in other Latin American countries.
Experts have explained that when interest rates rise in the US, investors prefer to move their capital to the country – considered one of the safest in the world – and take advantage of those higher deposit margins. At the same time, appetite for emerging markets such as Colombia is waning and this capital flight, has contributed to low entry of new portfolio investments. They reduce the flow of dollars for buying and selling and the shortage causes prices to rise.
Considering that inflation in the US was already showing signs of stabilizing, market agents were not only expecting that interest rates would not rise further, but would begin a downward cycle in the short term. However, CPI news for January changes the scenario.
The dollar will reach close to $4,000
Among everything related to US monetary policy, the topic that most interests businessmen and ordinary citizens is the price of the dollar, since Colombia imports a wide basket of goods and materials for consumption and production; Therefore, an expensive currency has a direct impact on the national cost of living.
In this case, capital markets expert Daniel Medina pointed out that it should be expected that inflation in the US will accelerate slightly in January, noting that “the demand component is higher in December. The economy remains very resilient and consumer spending “Continuing continuously.”
“The most important thing here is that the market took it as A clear call for the Fed not to change its monetary policy until the middle of the year. Most likely, the stock markets that were so euphoric and filled with bullishness are going to go to the downside while expectations wane again and the waters calm down.”
In that train of thoughts, he pointed to “The dollar in Colombia is going to realize this and is likely to rise above $4000 again in the coming weeks.”, In my opinion, the markets were generally very optimistic about a rate cut between March and May this year. With this data, those cuts start moving into July and beyond.
Alexander Rios, analyst at Inverxia, agreed that “the likelihood of a Fed rate cut from May to June has increased after US inflation data came in higher than expected (…) This has implications for the global economy and especially for emerging markets.” “The dollar may be affected.” Currencies like the Colombian peso.
“Staying the Fed rate at a level above 5% puts strong pressure on the currencies of countries with fiscal weakness and high exchange rate risk, such as Colombia, as the strength of dollar deposits makes savings and investments in the currency more attractive. Which undoubtedly puts the value of the local dollar closer to $3,900″He insisted.
So far in 2024, the US currency has appreciated by 2.4% and the representative market rate (TRM) applicable today is $3,915.
According to the most recent monthly survey of economic expectations – prepared by the Bank of the Republic – analysts forecast a dollar closing this year at $4,031, a price that would be 5% higher than that registered at the end of 2023.