The Colombian peso weakened sharply against the dollar Wednesday, fueled by a new spate of fears over the European sovereign-debt crisis and a potential Greek exit from the euro zone.
The peso closed at COP1,845.15 to the dollar, from COP1826.4 a day earlier. It was the weakest level for the peso since Jan. 11. The peso has now retreated 4.8% against the dollar in May.
“Everybody is focused on Greece right now and investors are moving to take defensive positions,” said Camilo Perez, head of research at Banco de Bogota. Investors are worried that debt-burdened Greece might the leave the euro zone instead of coordinating its debt-management policies with other European countries.
The peso’s retreat comes as the Colombian government was coming under pressure from exporters after the peso surged roughly 9% in the first four months of the year.
The government has managed to steer away from forceful foreign-exchange measures, such as capital controls that limit foreign investment, to deal with the peso’s strength against the dollar for much of this year.
So far, the government’s intervention in the foreign-exchange market has been limited to daily purchases of at least $20 million daily by the central bank, a move designed to soak up U.S. currency from the spot market.
Yet with daily trading volumes averaging roughly $1 billion, most traders point out that the central bank purchases are not sufficient to have an impact in the peso’s movement.
In the past, the central bank has also moved to limit sharp movements in the foreign exchange market. Last year, after a sharp retreat by the peso, the central bank said it would buy or sell foreign-exchange options if the exchange rate moves more than 4% from a 20-day moving average.
The bank was not forced to step in and replaced that program with the current $20 million minimum purchase.
Despite the sharp volatility seen this month, Perez projects that authorities will not impose any measures to try to limit any strong movements in the exchange rate. “The government is satisfied with the weaker peso,” he said.
“At this point, it’s a temporary movement and if things improve for Greece, we’ll see a quick return to the strong peso trend” seen for most of the year, Perez added.