Argentine peso at fresh lows despite U.S. purchases
The Argentine peso hit new lows on Wednesday as political uncertainty failed to offset the impact of an “unprecedented” multibillion-dollar support package from the United States.
The currency reached its lowest level since October 9, when the US began buying it, and has steadily depreciated since then.
The purchases are part of a U.S. effort to stabilize the Latin American country’s depreciating currency ahead of the Oct. 26 midterm elections, which will face Argentinian President Javier Milei, an ally of U.S. President Donald Trump.
US dollar/Argentine peso spot rate
The two countries also signed a $20 billion currency swap agreement with Argentina’s central bank; This agreement essentially replaced the stable US dollar with the floating peso.
Since the intervention, the Argentine peso has lost more than 5% of its value as of Wednesday morning. It touched new lows of 1% as $1 bought 1,490 Argentine pesos, but recouped some losses as the day progressed. It was last traded at 13:15 London time, down 0.3% against the dollar, while 1 dollar bought 1,490.24 Argentine pesos.
The move is “mostly” about elections rather than US support, according to Sergi Lanau, director of global emerging markets strategy at Oxford Economics.
“The peso is falling as people’s expectations shift towards a strong demonstration of Peronism,” he said, referring to left-wing parties in Argentina. “Foreign exchange intervention by the central bank or the U.S. Treasury could support the peso, but central bank dollar sales are weak and it is unclear whether the Treasury is purchasing significant amounts of pesos.”
“The situation would likely be worse in the absence of US support, but given the high degree of election uncertainty, there may not be enough US or official support to fully offset market stress,” he added.
Lanau said the political left, often called Peronism in memory of former president Juan Perón, “has traditionally pursued loose policies that have created high inflation, volatility and high demand for dollars because people do not trust the peso as a store of value.”
“Milei’s government is trying to solve some of these problems, but the cost of short-term economic growth is high. The difficulties of adjusting policy, combined with allegations of corruption against people close to Milei, have reignited expectations of a return to Peronist governments pursuing inflationary policies,” he added.
Argentina faces ‘real illiquidity’
Treasury Secretary Scott Bessent said in a post on the X channel when the package agreement was announced that the success of Argentina’s reform agenda is “systemically important” for the United States.
“Argentina is facing a moment of serious illiquidity. The international community, including @IMFNews, is united behind Argentina and its prudent fiscal strategy, but only the United States can act quickly,” Bessent said. he said.
“The US Treasury is ready to immediately take any exceptional measures necessary to ensure stability in the markets.”
Gustavo Medeiros, Ashmore’s head of global macro research, told “Squawk Box” on Tuesday that the package is “pretty unprecedented.”
He added that the Argentine government is trying to establish a mechanism whereby it can buy back its own bonds at a discount in the secondary market to reduce its debt level.
“Argentina does not have a financial sustainability problem right now. It has a liquidity problem. In such a situation, such packages are important,” he said.
