Colombia’s peso surged in volatile trading on Wednesday, as a scarcity of dollars on the local market exaggerated end-of-year moves.
The rest of the region’s major currencies eked out more moderate gains as investors looked to take on riskier positions heading into 2011.
Colombia’s peso jumped 4.89 percent to COP1,942 to the dollar, erasing most of this week’s sharp losses which had taken it to its weakest level in about 8 months.
The country’s central bank has been steadily buying dollars on the local market in an effort to curb the peso’s recent appreciation and protect exporters. But that scarcity of dollars has prompted volatile trading this week as investors try to settle their books in a thinly-traded market.
“We’ve been seeing the same factor in the last few days and that is the cash position. Here in Colombia we’re not allowed to have a negative position at the end of the day and people were short on dollars,” said Camilo Perez, head of economic research at Banco de Bogota.
Perez said the entry of some offshore players and some firms selling dollars — although the quantities were not substantial — helped reverse the weakening of the peso seen earlier this week.
“Colombia’s fundamentals are still intact and favor a substantially stronger currency,” Benito Berber, an analyst at Nomura Securities in New York, said in a research note.
“Today we see the signs of correction,” he said.
This week’s sharp losses were a result of a temporary squeeze in the local market, he said, adding that it was a perfect moment to buy the Colombian peso against the U.S. dollar.