The US dollar's rise is primarily driven by the Federal Reserve's cautious approach to interest rate cuts, reflecting a broader trend of monetary tightening.
In Argentina, the surge in alternative dollar rates highlights the ongoing economic challenges, including high inflation and the complexities of managing currency stability.
The dollar is expected to maintain its strength in the coming months if the Federal Reserve continues its current monetary policy stance.
In Argentina, the fluctuations in alternative dollar rates may lead to increased volatility in the financial markets, prompting further interventions by the Central Bank.
Dollar Strengthens Amid Federal Reserve's Hawkish Stance
The US dollar is nearing a two-year high following the Federal Reserve's recent announcements regarding interest rates. On December 19, 2024, the dollar index, which measures the currency against six others, settled at 108.05, just shy of its peak of 108.27. This surge is attributed to the Fed's indication of a slower pace of interest rate cuts in the coming year, which has led traders to reassess their expectations for monetary policy easing. Fed Chairman Jerome Powell's hawkish remarks have prompted a broad rally in the dollar, impacting various currencies significantly.
The Japanese yen has notably weakened, falling to a one-month low against the dollar after the Bank of Japan decided to keep interest rates unchanged. The yen dropped approximately 1.12% to trade at 156.56 against the dollar, while the Swiss franc and Canadian dollar also experienced declines, reaching record lows against the greenback. Analysts predict that if US interest rates remain steady until at least mid-2025, the dollar's upward trajectory is likely to continue in the coming months.
Rising Alternative Dollar Rates in Argentina
In Argentina, the alternative dollar rates are causing concern in the exchange market as they have surged significantly in recent weeks. The blue dollar, a parallel exchange rate, has increased by $150 in just one week, reaching $1,205, the highest level in eight weeks. This rise is attributed to a combination of increased demand, holiday spending, and a recent drop in the interest rate in pesos, which has halted the carry trade strategy that many investors had relied upon.
Market operators suggest that the Central Bank may have intervened to stabilize the exchange rate, as the gap between official and alternative rates reached 13%. The Central Bank's recent purchases of dollars, totaling over $1.3 billion this month, indicate an effort to manage the fluctuating rates. Despite the rise in alternative dollars, analysts note that the official dollar has increased by 26.4% this year, yet all dollar rates are losing ground against inflation, which has soared to 112% as of November. This situation raises questions about the sustainability of the carry trade and the potential for further interventions by the Central Bank.
