Colombian Retail Sales Rally as the Peso Faces Domes

Market Analysis by Quasar Elizundia, Expert Research Strategist at Pepperstone

January 20, 2025 –

“The Colombian peso is navigating a period of uncertainty, facing a confluence of complex factors at both the global and domestic levels. This situation calls for caution regarding the Colombian currency while waiting for greater clarity on the factors influencing its volatility and short- to medium-term outlook.

At the international level, the upcoming inauguration of a new president in the United States is creating caution not only for the Colombian peso but also for markets in general. The proposed trade policies have sown uncertainty, with the potential for increased volatility that could negatively impact emerging market currencies, including the Colombian peso. This, combined with the upcoming Fed meeting, keeps investors on edge.

Although no additional interest rate cuts are expected until the second half of 2025, the market will closely monitor any indications of a shift in U.S. monetary policy, driven by recent economic data. It is crucial to consider the dichotomy presented by recent U.S. economic data. While last week we saw strong data, such as job vacancies and NFP numbers, pointing to a resilient economy, this week has shown a moderation in the disinflation theme, complicating market interpretation.
This divergence between solid data and signs of inflation moderation creates an atmosphere of uncertainty, directly impacting market sentiment and, consequently, the behavior of the Colombian peso.

Domestically, Colombian economic data presents a mixed picture. Retail sales in November posted a 10.4% year-over-year increase, driven by robust performance in the automobile and technology sectors, suggesting higher consumer confidence in certain segments. However, significant challenges persist. A sharp decline in temporary employment and continued weakness in basic categories like clothing highlight the economic difficulties faced by a substantial portion of the population. This contrast between dynamism in some sectors and fragility in others generates a tension reflected in the currency.

Additionally, industrial production contracted by 2.1% in November, impacted by reduced output in vehicles and pharmaceutical products. The 0.8% decline in the manufacturing sector, falling short of market expectations, adds pressure to the industrial sector and investment outlook. This weakening in domestic productive activity is a key factor influencing the risk perception of the peso.

Looking ahead, the trajectory of the Colombian peso will largely depend on the release of key economic data, such as the trade balance and economic activity. Weak economic growth could heighten selling pressure on the currency, while strong data could help stabilize market sentiment. In this context of global uncertainty and domestic challenges, the Colombian peso finds itself at a crossroads, where prudent management of economic policy and developments in the international environment will be crucial for its future.”

Analysis by Quasar Elizundia, Expert Research Strategist – Pepperstone