Exchange rate closed June above S/3.83: How will it behave in the second part of the year?

In the first half of 2024, the exchange rate showed a notable increase in the Peruvian market, going from S/3.66 in March to S/3.80 in June, mainly due to the depreciation of copper, they report from Washington Capital. For the second half of the year, it is expected that the Fed would reduce its interest rates in September, which would encourage the Central Reserve Bank of Peru (BCRP) to follow a similar strategy.

The correlation between the price of copper and the exchange rate is direct. The decline in copper export revenues has limited the availability of dollars in the Peruvian market, leading to increased demand for soles.

“The impact of the depreciation of copper, by almost 50% so far this year, on the Peruvian economy is significant. The lower inflow of dollars from exports has led to a growing need for more soles to acquire the same amount of dollars,” said Washington López, CEO of Washington Capital.

This upward trend would also be due to the persistence of the economic crisis experienced worldwide, according to Omar Azañedo, economist and founder of NonCash. Furthermore, he points out that the growth prospects of the world’s major economies and our own are correcting downwards.

“The president has said that our country will only grow by around 3% with a certain optimism and we know that the growth expectations of the European, American and Chinese economies are not as expected. So, given this development in the last half year, the dollar is somehow strengthening,” explained Azañedo.

However, The possible next rate reduction by the Fed in September could result in an unfavorable differential for the Peruvian solprojecting the exchange rate in a range of S/3.90 to S/4.00 by the end of the year. In response to these challenges, the BCRP has decided to maintain its interest rate at 5.75% in order to avoid further depreciation of the sol and maintain an interest rate differential with the United States of 0.25%.

For his part, the founder of NonCash stated that at the local level, uncertainty persists because the government has not yet taken measures for economic recovery and this affects confidence and investment. Although the exchange rate is expected to continue rising, volatility could cause it to fall to S/3.70. Nevertheless, Without trust and investment, the dollar could approach S/3.90 by the end of the year.