USD/COP: Colombian Peso Continues to Lose Ground After Higher US Inflation Figures & FOMC Minutes

The dollar gains again today against the peso after yesterday’s inflation numbers. The minutes also showed the Fed is most likely to postpone the awaited pivot point.

At the last meeting the minutes showed that the members discussed cutting rates this year. However, they also acknowledged that inflation is more stubborn and persistent than initially thought.

Yesterday’s higher inflation numbers gave the markets the perception that interest rates won’t be coming down as quickly as previously thought. The US dollar has benefitted, and emerging market currencies such as the Colombian peso are paying the price.

The Fed’s next meeting is on May 1, while BanRep meets on April 30. According to the CME’s FedWatch tool the chances of a cut in rates is less than 3%. The probability of a cut in rates at the June meeting has fallen to 20% from 59% a week ago.

We have a very different forecast for BanRep’s next meeting, with most forecasts aiming for another cut of 0.50%. If the cut comes, it will bring the central bank’s main rate down to 11.75%. BanRep has cut rates at the last 3 meetings since December 2023.

The latest inflation data for Colombia, published on April 6, showed that inflation had declined to 7.36% from 7.74% previously. The decline strengthens the likelihood of a rate cut by BanRep. So, it looks like the interest rate spread between these two currencies will continue to favor the dollar for some time.

Technical View

The day chart below for the USD/COP shows a net bear trend with price well below the Ichimoku cloud. However, we are seeing the first signs of a correction which has various technical elements that would justify a retracement in price.

The RSI dipped well below the 30 level during the latest downward trend for this FX pair. And with yesterday’s close broke above 30, signaling a possible retracement. The RSI with today’s close is about to also break above its moving average adding to the signal.

And something a lot of traders overlook are historical support and resistance levels, and it doesn’t matter how far back they go. The most recent low at $3,741 (grey line) was an area the market attempted to break to the downside on several occasions.

On the monthly chart you’ll see a number of candle tails attempting to close below this are. All of them failed from the end of 2021 to the first months of 2022.