The 5 strongest currencies in Latin America

The Latin American currency that has appreciated the most against the dollar is the Uruguayan peso

The 5 strongest currencies in Latin America
Photo by Avinash Kumar / Unsplash

In 2022, the dollar reached historic highs, thus harming different world economies that depend on that currency to pay for some imports, since at least half of international trade is paid in that currency.

In addition, government debts that are in dollars increased with the rise in that currency. However, some countries have been able to cope with the increases without devaluing their currency and, on the contrary, have managed to make it appreciate.

The Latin American currency that has appreciated the most against the dollar is the Uruguayan peso, whose currency rose more than 11% in 2022, according to data from Latinometrics. This is due to the increase in its exports of products such as soybeans, meat and cellulose, for which its economy has received more income and, according to the law of supply and demand, the dollar has depreciated.

The second currency that remained in the region against the US was the Colón, from Costa Rica, with more than 8%. It is followed by the Brazilian real, with more than 6%. Said behavior is attributed to the high interest rate in the country and a rebound in the prices of raw materials such as crude oil and iron.

The Peruvian sol has also managed to appreciate more than 5% against the dollar, which is explained by the system they have used, known as the "dirty float", a model that allows the intervention of the central bank to buy dollars when the exchange rate falls and sells when it rises. In this way it is possible to keep its price stable. In addition, in Peru there are no fixed rules regarding such intervention, which makes it difficult for the system and the currency to be manipulated.

The Latinometrics ranking also includes the Mexican peso, which remained with more than 4%.

Experts in the matter assure that various currencies worldwide, especially in Latin America, are being revalued because the United States is losing strength as an investment destination.

For Janneth Quiroz, deputy director of economic analysis at Monex, market sentiment has been dictated by monetary policy, mainly from the Federal Reserve (Fed). “This expectation (of a rate hike) was attenuated after the inflation report for last July was published, which was below what was expected. However, after this report, several Fed officials mention that there is more evidence that inflation has already reached a ceiling and they will begin to evaluate ending this bullish cycle, ”she said.

Separately, James Salazar, deputy director of economic analysis at CI Banco, assured that other currencies that offer a certain behavior similar to those of Latin America are currencies from Indonesia and South Africa. However, he pointed out that the region's currencies still have relative strength, as seen in recent months.

Is it safe to invest in Latin American currencies?

The CI Banco analyst stressed that, despite the good appreciation of Latin American currencies, in the last quarter of the year, operators will once again turn to the dollar and to the currencies that have performed well so far this year.

“In the very short term, these currencies from Latin America and some from Asia could still be involved, but in the last quarter we could have a focus more towards the dollar due to the estimated increases by the Fed and due to the expected levels of inflation, since that, in real terms, the rate will not be so negative and that makes Treasury bonds more attractive”, concluded Salazar.