Why the Colombian peso is strong: the global factors driving its market appreciation today
While lower volatility and flows to emerging markets drive this currency, there are still risks in the air. Photo: Taken from Plaza Capital
TL;DR
- The Colombian peso has shown sustained appreciation in 2026, driven by lower global volatility and emerging market appeal.
- Reduced volatility, measured by the VIX index, has increased risk appetite, leading capital to emerging economies like those in Latin America.
- The peso has appreciated by approximately 5.6% this year, outperforming other regional currencies except the Brazilian real.
- Interest rate differentials continue to favor carry trade strategies, encouraging capital flow to the region and supporting currency appreciation.
- Colombia's peso performance is highly correlated with the Brazilian real, suggesting a stronger influence of external factors than internal dynamics.
- Expectations of devaluation have decreased, reducing pressure on the exchange rate and making local currency assets more attractive.
- Geopolitical risks, particularly tensions between the US and Iran, pose a threat to the current low-volatility environment.
- Internal factors, including net foreign currency purchases by the Ministry of Finance, have had a limited impact on the dollar's behavior.
- The future trajectory of the exchange rate will be influenced by the global environment, capital flows to emerging markets, and the country's political and institutional context.