Colombia’s peso is extending its declines against the dollar Tuesday, recently hitting a fresh 2011 low as worries of a global recession lead investors to unwind their positions in riskier assets.
The peso was recently trading at COP1,971 for $1, down 0.5% from Monday’s close of COP1,960.30 and 2.1% weaker from Friday’s close of COP1,930. The peso’s selloff has taken its cues from U.S. stocks and international oil prices, both which fell sharply Tuesday.
Colombia’s peso was stronger against the U.S. currency throughout most of this year amid rising foreign investment in the country’s booming oil and mining sectors that flooded the local market with dollars. Local central bank authorities, in fact, intervened in the forex market on a daily basis to prevent excessive peso strength.
But that all changed in September when global financial markets began swooning. Colombia’s peso has weakened 10% since Aug. 31 and Colombia’s central bank announced measures last week that could help to prevent steeper falls in the currency.
The new intervention tools, however, don’t go into effect until Oct. 14, suggesting that for now Colombian officials are happy to see the peso trend lower. A strong Colombian peso over the last couple years has proved damaging to the country’s important export sector.