2024-03-18 13:57:19
Source: Peshkova from Depositphotos.
Written by Fran Marín
What do the forecasts say about the situation of Latin American currencies in 2024?
Latin American Currencies: A Global Approach
Although one of the inherent features in the currency ecosystem and the universe forex (whose risks when trading CFDs with leverage are known to traders) is the diversity of subcontexts, we can identify a general pattern common to all the currencies that are part of LATAM. This has to do with a general trend of depreciation against the US dollar. In all cases, throughout 2024 interest rates will fall earlier and more quickly than in the United States. The main consequence will be the reduction of the positive interest rate differential that Latin America currently enjoys in contrast to those of the United States.
The most likely thing is that throughout this year, for example, the monetary policy rate will decrease to around 200 basic points in Mexico and around 500 basic points in Colombia. Both reductions will exceed, in any case, those carried out in the United States Federal Reserve which will probably be around 100 basis points of cuts.
The vulnerability of the currencies of Venezuela and Argentina will be accentuated
The same analysts predict that the fall of the Argentine peso and the Venezuelan bolivar will maintain a steep slope throughout 2024. Everything indicates that both will lose more than 50% of their value throughout the next year. Some of the most important influencing factors will be the lower confidence on the part of investors, dollarization or the processes inflationary. The team of experts anticipates the closing of 2024 with the US dollar at 1,700 Argentine pesos, that is, more than double the figure with which it ended in 2023 (800 Argentine pesos for 1 US dollar).
Likewise, their forecasts point in the same direction for Venezuela. In your case, a closing of 2024 is predicted with the US dollar at 93 Venezuelan bolivars. It would be another significant fall if we take into account that 2023 closed with the US dollar at 36 bolivars.
The Chilean peso will be the exception that marks the rule: Analysts expect its growth throughout the year.
Everything seems to indicate that the Chilean economy will be the only one in the region whose currency will strengthen throughout 2024. One of the most important factors will be the completion of the constitutional reform process after the referendum carried out in December. This is a change that will promote investment growth due to increased confidence as well as supported demand for the peso. In turn, the currency may also strengthen thanks to growing foreign interest in the field of green energy and the mining sector.
What do the long-term forecasts say? Beyond 2024
If we set the analysis horizon beyond the current year, Focus Economics analysts agree that the trend of depreciation of Latin American currencies against the US dollar will continue to increase. Some of the main drivers will be the prevalence of current account deficits, higher inflation rates than expected in the United States, as well as fewer growth opportunities and a political situation increasingly dominated by uncertainty.
A team of analysts from Itaú Unibanco insist on the contraction of Argentine GDP: “Our inflation forecast for 2024 is up to 200%, from the previous 150% (with a probable peak in the first half of 2024), reflecting the pass-through effect of the recent devaluation of the currency and the correction of energy, transportation and fuel rates, among others. “We estimate a GDP contraction of 2.5% in 2024, unchanged from our previous scenario.”
From EIU, they focus on the perspective of Chile which, in addition to the completion of the reform process, will positively influence the increase in battery manufacturing: “It is likely that the currency will gradually strengthen in terms of real exchange rate in the medium term , assuming that political uncertainty decreases. Firm copper and lithium prices (driven by high demand for base metals related to global investments in battery production) will also be supportive.”
#Exchange #rate #forecasts #Latin #American #economies