So far this year, the Colombian peso has appreciated 10.2% against the dollar (USD/COP), showing a better performance than that observed in the same period of 2024, when it depreciated 1.4%.
With the publication of the Medium-Term Fiscal Framework 2025 (MTFF 2025), it was anticipated that the USD/COP would depreciate as a negative market reaction to the complex fiscal outlook. However, the opposite happened. Why this behavior?
The main explanation lies in global dollar dynamics. U.S. tariff and fiscal policy, together with growing geopolitical tensions, have generated volatility in the markets, weakening the dollar. The DXY index, which measures the value of the dollar against a basket of the world’s main currencies, has accumulated a fall of 9.9% so far this year, recording its worst performance in the first half of the year since 1973, when the Bretton Woods gold standard was abandoned. Trump’s announcement of new tariffs on April 2, 2025, a date that has been dubbed “Liberation Day”, generated sharp falls in global stock markets.
Since that day, the DXY has devalued 5.1%, reaching levels of 96 points, lows not seen since February 2022. This loss of confidence is also reflected in the bond market: the US 10-year treasury, considered a risk-free asset, has fallen 8.7%, breaking the usual positive correlation it maintains with the DXY.
In this sense, although the Colombian fiscal context has been a source of uncertainty, the exchange market had already discounted a good part of this deterioration since the publication of the 2025 Financial Plan. However, the fiscal impact has been reflected in other variables; for example, the increase in the EMBI, which has accumulated a devaluation of 7.0% so far this year, one of the highest in the region. To this scenario, we must add the recent decisions of Moody’s and Standard & Poor’s rating agencies, which downgraded the credit rating weeks after the MFMP was announced. As a result, public debt has suffered significant devaluations: 10-year TES have lost 39 basis points, equivalent to a fall of 3.4% so far this year.
In conclusion, the recent appreciation of the peso does not respond to a structural improvement in the fundamentals of the Colombian economy. Its behavior is due to global factors that have weakened the dollar as a reserve currency. In international markets, a debate has been opened as to whether this weakness of the dollar will be transitory or structural.
Locally, the perception of country risk and the tight fiscal outlook will keep most of the assets undervalued; furthermore, in the foreign exchange market there could be greater risk appetite due to the carry trade of the region’s interest rates versus the Federal Reserve’s interest rates. The challenge going forward will be to contain fiscal risks and regaining investor confidence amid an uncertain international environment.
Source:
- Comentario Económico de ANIF, julio 16 de 2025
