October 25, 2024 (Globalinvestorideas.com Newswire) Globalinvestorideas.com, a go-to platform for big investing ideas releases market commentary from Quasar Elizundia, Expert Research Strategist at Pepperstone.
“The Colombian peso remains under pressure despite an unexpected improvement in business confidence during September. The industrial confidence indicator broke its seven-month streak in negative territory, rising to 1.3 from -1.4 in August. This uptick reflects a better production outlook for the next quarter and a slight increase in new orders, which surprised markets that had anticipated a continued decline in business sentiment. However, this improvement has not been enough to support the Colombian peso, which has dropped more than 0.5% at the start of the week and is now at its lowest level this year.
The pressure on the currency is also largely due to the strength of the US dollar and the recent weakness in oil prices. Crude has faced downward pressure following eased tensions in the Middle East, which has reduced the geopolitical risk premium that had been supporting prices. As a result, the Colombian peso has fallen to levels not seen since October of last year, highlighting its vulnerability to shifts in external conditions.
Additionally, the congressional debate over constitutional reform could further pressure the currency if passed without sufficient fiscal oversight. The reform aims to decentralize funds to regional governments, increasing government transfers from 26% to 46.5% of revenue by 2036. Although adjustments are being discussed to potentially lower this target to 40%, uncertainty regarding the fiscal sustainability of this measure has triggered negative reactions from investors, who fear a rise in public debt and a deterioration in the country’s economic stability.
The weakness of the Colombian peso, despite better business confidence data, underscores the structural challenges facing the economy. Fiscal risk perceptions, coupled with dependence on external factors such as oil prices and the US dollar, continue to limit any significant short-term recovery potential for the currency.”
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