US Strengthens In LATAM: Political Uncertainty And Mixed U.S. Data

(MENAFN- Investor Ideas) Investorideas, a go-to platform for big investing ideas releases market commentary from Quasar Elizundia, Expert Research Strategist at Pepperstone.

"The U.S. dollar is strengthening against Latin American currencies amid Political uncertainty and despite weak U.S. economic data. Last week was marked by volatility in Latin American currency markets, with the U.S. dollar appreciating against several regional currencies. This dollar strength is primarily attributed to investor caution ahead of Donald Trump's imminent presidential inauguration and uncertainty surrounding his trade policies.

Despite inflationary pressures in the U.S. showing some moderation recently, which could lead to a less restrictive monetary policy from the Federal Reserve, the possibility of tariffs and changes in trade relations with Latin America under the new administration has caused market jitters.

Investors are adopting a 'wait and see' stance amid the uncertainty about the future of U.S.-Latin America trade relations. This uncertainty translates into increased demand for the dollar as a safe haven, putting pressure on regional currencies.

It is important to note that this dollar appreciation is occurring despite some disappointing U.S. economic indicators. Retail sales in December grew by just 0.4%, falling short of expectations, while initial jobless claims rose by 14,000, marking a pause in the positive streak of labor market data.

Although a relatively weaker labor market could prompt the Federal Reserve to ease its monetary policy, which would theoretically weaken the dollar, political uncertainty is offsetting this effect.

In this context, the Mexican peso emerges as one of the most vulnerable currencies due to the close trade ties between Mexico and the U.S. The possibility of tariffs points to a challenging outlook for the Mexican peso. On the other hand, the Colombian peso could find some support if political uncertainty eases and the dollar weakens. A weaker dollar would favor stronger oil prices, a key pillar of Colombia's public finances, which would support the Colombian peso.

The future of Latin American currencies will largely depend on the policies implemented by the new U.S. administration and their impact on trade relations with the region."

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