Colombian Peso Roars Back to a Five-Year High vs Dollar
Colombia · Markets
Key Facts
—The level. The dollar fell to about 3,475 pesos, its lowest since January 2021.
—The ranking. The peso is the most-revalued emerging currency over the past year, up 19.4 percent.
—The reversal. Only weeks ago the same currency was the worst performer in its peer group.
—The drivers. Strong remittances, higher oil prices and steady US rates have all helped.
—The carry trade. A high local interest rate of 11.25 percent lures yield-hungry investors.
—The catch. A cheap dollar squeezes exporters and stirs a debate about the export model.
The Colombian peso has surged to a five-year high against the dollar, becoming the best-performing emerging-market currency only weeks after ranking as the worst.
The Colombian peso is having a remarkable moment, extending a rally our reporting has tracked across multiple cycles. The dollar has slumped to around 3,475 pesos, a level not seen in more than five years.
The official reference rate broke below the 3,500 mark this week, hitting its lowest point since January 2021. In a single week the dollar shed well over a hundred pesos.
How far the Colombian peso has come
What makes this striking is the speed of the turnaround. Over the past year the peso has gained more than nineteen percent, the strongest run of any emerging-market currency.
That puts it ahead of the next-best performer, Hungary’s forint, by a wide margin. For a currency once synonymous with volatility, it is a notable turn.
The reversal is what stuns market-watchers. As recently as May, the peso was the worst-performing currency in its peer group, battered by fiscal worries and election nerves.
Some banks had even advised clients to bet against it. Those wagers have aged badly as the currency staged one of its sharpest rallies in two decades.
The whiplash is a reminder of how quickly sentiment can flip. The very fiscal and political fears that sank the peso in spring have, for now, given way to optimism.
What is driving the rally
Several forces are pushing in the same direction, though our reporting has shown the peso’s rallies often outrun commodity-linked explanations. A broadly weaker dollar has lifted emerging-market currencies across the board, and the peso has ridden that wave hardest.
Money sent home by Colombians abroad has been flowing in strongly. These remittances are a steady source of dollars that supports the local currency.
Oil prices have also helped, since crude is Colombia’s top export. Firmer global prices mean more dollars earned by the country’s exporters.
There is a financial magnet at work too. With the central bank holding its key rate at over eleven percent, investors can earn rich returns parking money in pesos while US rates hold steady.
This is the classic carry trade. Borrow cheaply in a low-rate currency, invest in a high-rate one, and pocket the difference as long as the exchange rate cooperates.
Colombia offers one of the richest such spreads in the emerging world. That has drawn a steady stream of foreign money chasing yield into peso assets.
The election in the background
Politics is part of the story as well. Colombia held the first round of its presidential election this month, with a runoff due on June 22.
A right-leaning candidate finished narrowly ahead of a left-wing rival in that first round. Many investors read the result as raising the odds of a more market-friendly government.
That perception has added fuel to the rally. Markets often move on the expectation of policy change long before any new leader takes office.
It is worth stressing that this is a market reading, not a verdict on any candidate. Investors are pricing probabilities, and the runoff could still surprise them.
Why a strong peso cuts both ways
A soaring currency is not all good news. Local commentators have called the cheap dollar a bittersweet development for the economy.
The upside is real. A stronger peso makes imports and foreign travel cheaper and helps cool inflation, easing the squeeze on households.
The downside falls on exporters. Coffee growers, flower farms and oil producers earn fewer pesos for each dollar of sales, denting their competitiveness abroad.
It also complicates the government’s own books. A cheaper dollar trims the peso value of oil royalties and export taxes, even as it eases the cost of servicing foreign debt.
For a foreign reader, the lesson is about fragility. Currency leadership built on global moods and an election bet can reverse fast, as Colombia’s own recent history shows.
Frequently Asked Questions
How strong is the Colombian peso right now?
The dollar has fallen to around 3,475 pesos, its lowest since January 2021. Over the past year the peso has gained more than nineteen percent, the most of any emerging-market currency.
Why is the peso so strong?
A weaker dollar, strong remittances, firmer oil prices and a high local interest rate have all helped. Hopes for a more market-friendly government after the first-round election have added to the momentum.
Is a strong peso good for Colombia?
It cuts both ways. It makes imports cheaper and helps tame inflation, but it hurts exporters such as coffee, flower and oil producers by reducing their peso earnings.
Connected Coverage
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