Buenos Aires – Argentina’s peso continued its volatile trajectory on Monday, , despite ongoing intervention by the U.S. Treasury. The currency fell to a new record low, even as the U.S. Continued efforts to bolster its value, highlighting the deep-seated economic challenges facing the South American nation.
The peso closed at 1,477 against the U.S. Dollar, a nearly 1% decline and a fresh low, nearing the bottom of the exchange rate band established in April. This depreciation follows a 5.2% tumble on Friday, bringing the peso to within five pesos of its all-time low, despite a significant injection of dollars from the U.S. Treasury. The Treasury’s intervention, which included purchases in both the official and parallel markets, proved insufficient to stem the decline, raising doubts about the sustainability of the current rescue efforts.
The U.S. Has committed approximately $20 billion in aid to Argentina, aimed at stabilizing the economy under President Javier Milei. However, concerns persist that Milei may be forced to devalue the peso further, particularly if his party suffers setbacks in upcoming elections. Former U.S. President Donald Trump has added to the uncertainty by threatening to rescind the aid should Milei’s political position weaken.
Economists note that the market’s reaction suggests a lack of confidence in the long-term effectiveness of the U.S. Intervention. Juan Sola, an economist at Banctrust, stated that the intervention “has not been enough to prevent a rise in both the official and parallel exchange rates.” He anticipates further pressure on the peso in the coming week, potentially pushing the official exchange rate to the upper limit of its band unless the Treasury increases its intervention.
The bond market mirrored the currency’s volatility, experiencing a temporary jump in prices on Friday before reversing course. This illustrates the sensitivity of Argentine markets to political and economic developments, and the difficulty in sustaining positive momentum.
The official wholesale exchange rate closed at 1,370.50 pesos per dollar, a decrease of 5.50 pesos or 0.4% on the day. February has seen a cumulative decline of 76.50 pesos, or 5.2%, for the peso against the dollar. The gap between the official rate and the upper limit of the exchange rate band – set at 1,600.66 pesos – widened to 16.8%, the largest distance since .
At the Banco Nación, the dollar was offered at 1,390 pesos for sale, a 0.4% decrease. The unofficial “blue” dollar rate also edged down, closing at 1,425 pesos for sale, a 0.3% decline. Year-to-date, the blue dollar has fallen by 6.9%.
The “contado con liquidación” rate, a commonly watched indicator, settled at 1,440 pesos, creating a 4.8% spread between it and the official rate. The MEP dollar, meanwhile, dipped below 1,400 pesos for the first time since .
Gustavo Ber, an economist, attributed the peso’s decline to a combination of factors, including continued strong demand for dollars and speculative pressures. He noted that the excess supply of foreign currency, driven by increased emission liquidations and carry trade activity, is helping to push down the dollar in the wholesale market and boosting the Central Bank’s reserve accumulation.
Portfolio Personal Inversiones highlighted the role of carry trade strategies, where investors borrow in pesos to buy dollars, taking advantage of interest rate differentials. They noted that the government’s efforts to manage liquidity through Treasury bill auctions are contributing to this dynamic.
As of , Argentina’s gross international reserves stood at $46.261 billion, the highest level since . This increase was partly attributed to the deposit of $800 million from the province of Santa Fe, proceeds from a debt issuance in December.
The situation underscores the fragility of Argentina’s monetary framework, as highlighted by recent analysis. The ease with which individuals and businesses can switch between pesos and dollars contributes to the volatility, making it difficult to stabilize the currency through intervention alone. The long-term outlook for the peso remains uncertain, dependent on the success of Milei’s economic reforms and the continued support of the U.S.
