The reasons that led the dollar to the highest price in history

The combination of economic, international and local geopolitical factors caused the dollar in Colombia to register a new maximum for this weekend and on Tuesday, reaching $4,636.83.

(Dollar is traded in the futures market at $5,200: what it is and how it works).

During 2022, the dollar in Colombia has risen $655 after opening the year at $3,981.16.
In the banking market, the currency closed on Friday at $4,704, data that represents an increase of $120 compared to the previous close after having opened at $4,555.

The minimum price of the dollar in the banking market was $4,548 and the maximum reached $4,707, the highest value in interbank trading in history.

The average price was $4,636.84, according to the records of the Banco de la República.

The scenarios of a possible global economic recession that could affect Colombia, the almost certain rise in interest rates in the United States to combat inflation and the persistent war in Ukraine that affects the prices of various inputs remain the main factors of the situation international for the dollar market.

But also There are elements of an economic and political nature in Colombia that, according to analysts, contribute uncertainty in the dollar market.

An analysis by Corficolombiana indicates that the exchange rate has bordered historical maximums during the last few days, which has translated into a depreciation of almost 25% since the beginning of the second quarter.

It says that although the dollar has strengthened across the board against the world’s major currencies – including those of developed countries – the Colombian peso is experiencing greater volatility and one of the steepest depreciations in the world.

(The dollar reaches its highest TRM in history: 4,636.83 pesos).

Now, when comparing the behavior of the Colombian peso during the last four global recessions against the performance of other currencies, the firm says that the trend is being especially adverse for the peso in the current situation.

In particular, it points out that it is compared against the currencies of oil-exporting economies, given the nature of the Colombian export basket in which this commodity plays a preponderant role, the Latin American currencies; and the currencies of developed economies.

He mentions that during 2022, the Colombian peso has strengthened against some European currencies in line with a first quarter in which a scenario of high prices of raw materials and a recovery in global demand was configured after the era of strict confinements due to covid-19 in which the appetite for emerging assets increased.

In addition, the European region has been particularly vulnerable to the conflict in Ukraine due to its geographical proximity and dependence on energy supplies from Russia.

However, for Corficolombiana, since the end of May, a more than proportional weakening of the Colombian peso has been observed compared to the three reference groups, and since June 22 the depreciation has deepened.

(The dollar in Colombia closed the week with historical prices).

The foregoing suggests that political factors and the enormous challenges of the Colombian economy to adjust in the short term the structural imbalances in fiscal and external matters, continue to accentuate the devaluation of local assets in a challenging external context.

For his part, Alejandro Quiñones, founder and director of AQconsultor and author of the book The architecture of money, says that to the extent that there is much more inflation in Colombia, this creates mistrust and people naturally seek to protect their money in hard currency. . “For this reason, at this moment we see a strong increase in the market. In addition, the analyst considers that we will be seeing more hikes in the future”.

According to Corficolombiana, in 2022, the peso has weakened against regional currencies, although the depreciation is less against the Chilean peso. The vulnerabilities of Chile and Colombia associated with high fiscal and external deficits, as well as political uncertainty due to the renewal of the government in both countries and the constitutional reform in Chile, have increased devaluation pressures and volatility in both cases against peers. the region. But since May 31, the Colombian peso has depreciated 6.2% against the Chilean, and 9.5% since June 22.

The Central Bank of Chile intervened for up to US$25 billion between July and September to contain the depreciation of the peso.

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