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Argentine peso at fresh lows despite U.S. purchases
The Argentine peso reached fresh lows on Wednesday as political uncertainty failed to offset the impact of an an “unprecedented” billion-dollar support package from U.S.
The currency reached its lowest level since the U.S. began purchasing it on Oct. 9, and has consistently fallen since then.
The purchases are part of an effort from the U.S. to stabilize the Latin American country’s depreciating currency ahead of Oct. 26 midterm elections faced by Argentina’s President Javier Milei — an ally of U.S. president Donald Trump.
U.S. dollar/Argentine peso spot rate
The two countries also signed a $20 billion currency swap deal with Argentina’s central bank, essentially exchanging stable U.S. dollars with volatile pesos.
Since the intervention, the Argentine peso has fallen over 5% as of Wednesday morning. It touched on fresh lows of 1% with $1 buying 1,490 Argentine peso, but pared some losses as the day continued. It was last seen trading 0.3% lower against the dollar, with $1 buying 1,490.24 Argentine peso, at 1:15 p.m. in London.
The move is “mostly” about the elections rather than the U.S.’ support, according to Sergi Lanau, director of global emerging markets strategy at Oxford Economics.
“The peso falls whenever people’s expectations shift toward a strong showing by Peronism,” he said, referring to leftwing parties in Argentina. “FX intervention by the central bank or the US Treasury could support the peso but central bank dollar sales have been light and it is unclear the Treasury bought substantial amounts of pesos.”
“The situation would likely be worse in the absence of US support but given the high degree of electoral uncertainty, there may be no amount of US or official support that fully offsets market stress,” he added.
The political left, typically named Peronism after former president Juan Perón, “traditionally run loose policies that generate high inflation, volatility, and high demand for dollars as people don’t trust the peso as a store of value,” Lanau said.
“Milei’s government is trying to address some of these issues, but at a high short-term economic growth cost. The complications of doing policy adjustment coupled with corruption allegations against people close to Milei have reignited expectations of a return to Peronist governments that run inflationary policies,” he added.
Argentina faces ‘actute illiquidity’
For the U.S., success of Argentina’s reform agenda is of “systemic importance,” Treasury Secretary Scott Bessent said in a post on X at the time of the announcement of the package deal.
“Argentina faces a moment of acute illiquidity. The international community – including @IMFNews– is unified behind Argentina and its prudent fiscal strategy, but only the United States can act swiftly,” Bessent said.”
“The U.S. Treasury is prepared, immediately, to take whatever exceptional measures are warranted to provide stability to markets.”
Gustavo Medeiros, head of global macro research at Ashmore, told “Squawk Box” on Tuesday that the package was “pretty unprecedented.”
He added that the Argentine government is trying to establish a mechanism to buy back their own bonds on the secondary market at a discount, to reduce its level of debt.
“Argentina doesn’t have a fiscal sustainability problem at the moment. They have a liquidity problem. And in that kind of situation, these sorts of packages are important,” he said.
