The Colombian Peso Held Steady Against the US Dollar in July, Slipping Slightly

The Colombian peso (COP) depreciated by 1.9% month-over-month in July, a development attributed to several interconnected factors on both the international and domestic fronts, according to a report from Bancolombia‘s International and Foreign Exchange Analyst, Maria Paula Gonzalez Rodriguez. The depreciation coincided with a strengthening of the US dollar, a decrease in global tariff-related uncertainty, and local fiscal policy signals.

The US dollar’s global appreciation significantly drove the peso’s performance. The Dollar Index (DXY) rose by 3.2% in July, supported by a more hawkish stance from the US Federal Reserve (Fed), solid economic data from the US, and new international trade agreements. The Fed’s Federal Open Market Committee maintained the federal funds rate at 4.25%-4.50% for the fifth consecutive time, a decision that analysts cited as contributing to the dollar’s strength. US economic indicators, including retail sales, industrial production, and second-quarter GDP, surpassed expectations. GDP grew by 0.7% compared to the first quarter, exceeding the 2.5% annualized estimate.

Looking ahead, Bancolombia projects the USD/COP exchange rate to trade between $4,000 COP and $4,200 COP over the next month.

July also saw the US finalize trade agreements with several partners, including Japan, Indonesia, the Philippines, and the European Union. Negotiations with China also resumed. These developments were noted as a factor in reducing global trade-related uncertainty, which, in turn, supported the dollar.

On the domestic front, the proposed 2026 General Budget (PGN 2026) raised concerns regarding Colombia’s public finances. The budget, which is set to increase to $557 trillion COP, faced scrutiny for a planned rise in primary spending and its reliance on assumptions of lower interest payments and higher revenues. The fiscal figures, revised within a short timeframe, contributed to increased market uncertainty and a higher risk premium for the country.

In the foreign exchange market, the USD/COP pair traded in a range between $3,949 COP and $4,205 COP during July, closing the month at $4,181 COP. This represented a $79 COP increase from the end of June. Daily trading volume averaged $1.2 billion, with an average of 1,928 transactions per day. The average intraday volatility was $46.5, which was in line with the year-to-date average.

Looking ahead, Bancolombia projects the USD/COP exchange rate to trade between $4,000 COP and $4,200 COP over the next month. The forecast maintains a depreciation bias for the peso, citing an elevated risk premium. The report also highlights international trade policy as a dominant factor, noting upcoming deadlines for reciprocal tariffs and a temporary tariff reduction agreement with China. Furthermore, the Central Bank of Colombia’s decision on July 31 to maintain its policy rate at 9.25% is expected to create upward pressure on the year-end rate. It may enhance the appeal of carry trade strategies, posing a downside risk to the peso.

Colombian Peso. Photo credit: Mano Chandra Dhas.