Colombian traders were bracing for a volatile session yesterday after a dispute with the US over deported migrants triggered a brief threat of tariffs from US President Donald Trump.
The South American nation reversed its decision to reject the return of the migrants after Trump announced an emergency 25 percent tariff on all Colombian goods coming into the US. That call had sparked warnings of a deep sell-off in Colombian assets and a slide in emerging-market currencies globally with the Mexican peso weakening more than 1 percent.
“The Colombian peso will benefit from the market’s relief on the White House’s latest announcement, but the currency and its regional peers will have to factor in the prospect of the risk of similar tactics being tried again in the future,” Lombard Odier Asia Ltd senior macro strategist Homin Lee (李霍民) said in Singapore.
Photo: Reuters
“We remain relatively cautious on the economy and its currency for the time being,” he added.
Before the announcement of a deal, Credicorp Capital Colombia chief economist Daniel Velandia said the peso would weaken against the US dollar yesterday morning, adding that the economy could inch toward a recession in an “extreme scenario,” in remarks to Bloomberg News.
Trump earlier ordered a 25 percent tariff, which would have been raised to 50 percent in one week.
Colombian President Gustavo Petro later said he would impose retaliatory tariffs on goods from the US.
Emerging currencies, which were hammered late last year amid concerns around Trump’s policies, climbed last week as a softer-than-expected roll-out of US tariffs and the absence of new levies on Chinese imports eased fears of a widespread trade war. High-yielding Latin American names, including Colombia’s peso, paced the gains.
The rapid resolution for Colombia would do little to quell investor uncertainty over Trump’s usage of tariffs, as it has become clear that trade would be his first weapon of choice in any policy disagreements.
“Most investors had the idea that Colombia could be a bit removed from the main stage of tariff risk and had been willing to enter into [Colombian peso] COP carry positions recently,” Banco Bilbao Vizcaya Argentaria SA market strategist Gilberto Hernandez-Gomez said in comments to Bloomberg News before the deal was reached.
“Now the risk premia will increase,” he said.
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