Colombia’s peso rose the most in 10 weeks as the Federal Reserve’s plan to pump more money into the world’s biggest economy fueled demand for higher-yielding, emerging-market assets.
The Fed said yesterday it will buy an additional $600 billion of Treasuries through June as part of its record stimulus to reduce unemployment and avert deflation. The debt buying is known as quantitative easing because it aims to increase the quantity of money. Yesterday’s action has been dubbed “QE2” by analysts and investors because it’s the second round of quantitative easing.
The Colombian peso climbed 1 percent to 1,819.30 per U.S. dollar at 11:07 a.m. New York time, from 1,836.95 yesterday. That’s its biggest intraday jump since Aug. 23. Today’s gain pushed the peso up 12.4 percent this year, the third-best performance after the Iceland krona and Thai baht among 25 emerging-market currencies tracked by Bloomberg.
“The trend for inflows to continue pressuring gains in Latin American currencies will remain because of QE2,” said Enrique Alvarez, head of Latin America fixed-income research at IDEAglobal in New York. “Investors are seeking growth and yield.”
Measures announced last week by Colombian officials to ease the peso’s rally will help temper some of the peso’s gains, according to Alvarez.
Finance Minister Juan Carlos Echeverry said Oct. 29 the government will eliminate most tax exemptions on overseas borrowing to reduce the inflow of dollars. The government will also buy as much as $3.7 billion through the currency forwards market to hedge foreign debt payments, he said.
The same day, central bank chief Jose Dario Uribe said the institution will keep buying a minimum of $20 million a day through auctions until at least March 15, two months longer than previously planned. He also left open the possibility of additional purchases, saying the bank can buy dollars in the market through a local clearing house “at any time.”
“Colombian markets are just digesting the new set of measures,” said Alvarez. He forecasts the peso will end this year at 1,830 per dollar.
The yield on the nation’s benchmark 11 percent bonds due 2020 fell 4 basis points, or 0.04 percentage point, to 7.06 percent, according to Colombia’s stock exchange. The bond’s price rose 0.339 centavo to 127.011 centavos per peso.