The exchange rate started the day with an increase of $9.2 from Thursday’s close., positioning itself at $875.69. This figure is the highest since records exist, surpassing the 875.21 dollars in which the American currency ended the day after the election of President Gabriel Boric. In one week, the greenback rose by $30.65.
The scenario for the Chilean peso was not the best. On the one hand, Three-month copper contracts fall 2.28% to US$4.03 per pound. The red metal is an important source of foreign currency for the national economy, representing half of the country’s exports, hence its role in the exchange rate.
From Cochilco, they reported that the price of copper ended the week on the London Metal Exchange at $4.128 per pound, down 4.6% from Friday last week.
The factors that weaken the mineral according to the entity are on the one hand »affected by the sharp 75 basis point interest rate hike by the Federal Reserve. This rise was triggered by the high inflation figure in the United States published last Friday, which reached 8.6% per year, the highest in 40 years.
The commission said that “although a 50 basis point rise was expected until last week, the market began to internalize from Monday a more aggressive move by the Federal Reserve, which pushed the U.S. dollar globally and weakened the price of the red metal at the same time. The Federal Reserve’s decision is the largest rate hike since 1994”.
On the Chinese side, Cochilco pointed out that “aLimited lockdowns are still ongoing in some cities with outbreaks of Covid-19, fueling uncertainty about how authorities will react to new massive outbreaks.
Likewise, “the Chinese economy is showing signs of a slight recovery, after the impact on the productive system and on services caused by the confinements in several cities of the country. This is how industrial production increased by 0.7% in May compared to the same month of 2021”.
It was added that “the People’s Bank of China maintained interest rates for the fifth consecutive month, in line with market expectations.. The more aggressive monetary adjustment on the part of the Federal Reserve limits the possibility of a more expansive monetary policy of China’s autority, it may cause damage to capitals and a sudden debilitation of the yuanuctivo and in the services caused by the confinements in various ciudades del Country. This is how industrial production increased by 0.7% in May compared to the same month in 2021.
appetite for the dollar
The pressure of the dollar at the global level added to this, which gained ground. The dollar index – which measures the American currency with the main world currencies – advances by 1.04%.
The increased appetite for the dollar grew after the US Federal Reserve this week announced its biggest interest rate hike since 1994 and signaled that it may continue to raise rates this year at the fastest pace. fast for decades to fight inflation.
It should be recalled that earlier this week, Wells Fargo mentioned in a report that the Chilean peso was one of the emerging currencies as one of the currencies “the most vulnerable and likely to come under the greatest pressure” from the Fed’s interest rate hike.
Bci Estudio warned in a report sent today that “lExternal financing conditions have deteriorated rapidly for the Chilean economy, and the exchange rate, which is the main adjustment instrument against shockso he let him see. The exchange rate is at its historic high, fueled by a strong sale on international markets and a local political, economic and social situation that does not allow the pressures to be contained”.
The firm indicated that with the Fed’s decision, “has prompted increases in short and long-term interest rates in advanced economies and an unprecedented strengthening of the value of the US dollar, which is also approaching record highs.”
One of the questions he raises is whether it is time to intervene on the exchange rate in Chile? Bci Estudios explained that this corresponds to a discretionary decision by the Central Bank, taking into account the need to readjust the exchange rate to levels compatible with economic variables, in addition to other considerations.
The bank recalled that the last foreign exchange intervention in December 2019 occurred with a misalignment of the exchange rate of around 15% with the main economic variables, according to its estimates. Today, this misalignment is about 6%.
According to Bci Estudios “the current rise in the exchange rate is explained by global factors, while on this occasion local factors have played a preponderant role”.
In the opinion of Bci Estudios, “the conditions for a foreign exchange intervention are not yet in place, but the local and external economic scenario may put excessive pressure on the Chilean peso and provide arguments for a foreign exchange measure” .
Scotiabank Chief Economist Jorge Selaive said on a Twitter account that “With international reserves around a modest 15% of GDP, the Central Bank has limited scope for massive and successful foreign exchange intervention if the Chilean peso rapidly approaches $900. Keep raising the rate for now and ‘pray’ a dollar sale isn’t necessary.”
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