Why is the dollar still down despite the political crisis?

The dollar marked a new week of volatility that led it to break records since it rose in 2021 (10.28%) in the face of the political environment and international scenario. The currency showed a downward trend since last Monday, February 7, its lowest price -so far this year and the Government of Pedro Castillo- was recorded on Thursday, February 10, when it reached S / 3.74 . Although there was a slight uptick a day later, the greenback It has left the threshold of S / 3.80 in which it was located since last January 12.

Experts consulted by La República highlighted that behind the strength of the Peruvian sol there are three factors that we will discuss below.

economy factor

Adrián Armas, central manager of Economic Studies of the BCR, affirmed this last Friday, February 11, that “Peru’s macroeconomic fundamentals is one of the reasons for the strength of the local currency”, because our country has a context favourable, which is reflected in the tall prices of the products we export.

Arturo García, Professor of Finance at ESAN Graduate School of Business, highlighted our surplus trade balance as one of the main foundations, which in 2021 amounted to US$ 14,752 million, according to BCRP estimates.

“The surplus has been strengthened thanks to the super cycle of minerals that has existed since 2020,” commented the specialist.

action of central banks

Another factor that has strengthened local currencies has been the process of raising reference rates by the central banks of Latin America before the Federal Reserve (fed) from the United States.

“In line with the inflation outlook we have seen, which has been higher than expected, Latin American central banks have reacted significantly with strong rates, but there has been an upward cycle that is expected to continue in the coming months precisely to make inflation converge back to the target range. For this reason, the market has seen this policy in recent weeks that has obviously affected the change”, said Dario Valdizán, director of buy side research at Credicorp Capital Asset Management.

Javier Pineda, CEO of Billex, warns that the rise in rates from the US “could generate an inverse effect on the local economy, since it will generate an outflow of dollars that are in emerging economies, such as Peru, and with it the exchange rate has an upward effect.

Internalization of the political crisis

In 2021, the dollar gained ground in part due to the political factor after the election of Pedro Castillo and the swearing-in of his first cabinet led by Guido Bellido, with whom the exchange rate reached S/ 4.13. Then Mirtha Vásquez would arrive, who mitigated the upward streak, but she would soon return after the failed vacancy attempt promoted by the opposition in Congress. The prime minister resigned on January 31 and Héctor Valer came in to replace her, who had to resign from office due to serious questions.

“The expectation was that the exchange rate would rise with the confrontation caused by Valer’s cabinet, but the exchange rate did not move, that means that the political sphere is not having an impact on the dollar, there is a certain calm,” he stressed. Jose Duarte, CEO of Firbid.