USD/COP to test all-time highs ahead of elections - CIBC

Matías Salord FXStreet

The May 29 presidential election in Colombia represents a risk to the Colombian peso, according to analysts at CIBC. They forecast USD/COP at 4200 by the end of the first quarter and at 4100 by mid-year.

Key Quotes:

“Banrep increased the overnight rate by 100 bps to 4.00%, against market consensus and our forecast for a 75bps increase. Banrep left the door open for similar rate increases in the short term as inflationary pressures remained in place and both core and headline inflation are above target.”

“We expect Banrep to increase the overnight rate by another 100bps in March and we revised our terminal rate forecast for Q3 to 7.50% (previously 7.25%).”

“Looking at USD/COP, although we recognize that the global supply shock and recent upside surprises to headline inflation suggest a front-loading of the tightening cycle, current political dynamics should prevent a sustained appreciation of the COP for most of H1.”

“The 2022 legislative and presidential election cycle is marked by a clear move to the left in the region, while locally, the protests at the end of 2019 and in early 2021 have supported the increase in popularity of leftist candidates (…) current local and regional trends suggest a much greater representation of the left in the next four years, adding another layer of risk ahead of the May 29 presidential election.”

“We anticipate USD/COP moves that are similar to, if not greater than, those experienced in Chile and Peru in 2021, bringing USD/COP above its historical highs before the end of Q1. Hence, we maintain our long.”

Author

Matías Salord

FXStreet

Matías started in financial markets in 2008, after graduating in Economics. He was trained in chart analysis and then became an educator. He also studied Journalism. He started writing analyses for specialized websites before joining FXStreet.

GBP/USD surrenders some gains, back to 1.3420

GBP/USD holds on to moderate gains above 1.3400 the figure on Friday. Optimism surrounding the UK government’s leadership transition and expectations of further BoE tightening support the British Pound, while easing tensions in the Middle East and fading Fed rate-hike expectations weigh on the US Dollar.

EUR/USD turns positive, targets 1.1450

EUR/USD now picks up pace and advances toward the 1.1440 region on Friday, up modestly for the day. With no major economic data due, lingering uncertainty over the US-Iran conflict keeps investors cautious, limiting the pair's upside.

Gold remains offered, still below $4,100

Gold struggles to extend Thursday’s rebound and navigates below the $4,100 mark per troy ounce on Friday. Uncertainty surrounding the Middle East conflict limits the precious metal’s upside, which is also under pressure amid rising US Treasury yields across the curve.

Week ahead – US CPI and Warsh testimony to take centre stage, BoC eyed too

US inflation report and Warsh testimony to headline the week. Dollar to dominate amid slew of other US data and Mideast tensions. Amid fresh Iran escalation, China GDP to shed light on Q2 impact. Bank of Canada not expected to follow RBNZ with rate hike.

Five sessions, one round trip: Why the whipsaw is exactly what Warsh ordered

Markets opened July with a December hike as the base case and spent five trading sessions unlearning and relearning it. A 57K payrolls print bled the tightening bets out of the strip; a re-shut Strait of Hormuz is pushing them back in. Wednesday's minutes from the June Federal Open Market Committee meeting landed mid-round-trip, describing a world that had already stopped existing.

Five sessions, one round trip: Why the whipsaw is exactly what Warsh ordered

Markets opened July with a December hike as the base case and spent five trading sessions unlearning and relearning it. A 57K payrolls print bled the tightening bets out of the strip; a re-shut Strait of Hormuz is pushing them back in. Wednesday's minutes from the June FOMC meeting landed mid-round-trip, describing a world that had already stopped existing.