Peru: Peruvian sol depreciates amid declining outlook and shift in U.S. monetary policy
October 8, 2014
The Peruvian sol (PEN) has been losing value against the dollar in recent weeks. On 29 September, the sol traded at 2.90 PEN per USD, which was 1.8% weaker than on the same day last month and 4.1% weaker on an annual basis. Moreover, this represented the weakest exchange rate since November 2009.
The depreciation comes amid a weakening outlook for the Peruvian economy and as markets have begun pricing in a normalization of monetary policy in the United States. The Fed is set to end its bond-buying program this month and is expected to begin raising interest rates as early as Q2 2015, which is decreasing demand for emerging market assets and currencies such as the Peruvian sol.
The Peruvian Central Bank has responded by intervening in the foreign exchange market. On 7 October, the Bank sold USD 10 million in the local market to prop up the sliding sol. This was the latest in a series of moves designed to counteract the surge in local demand for dollars.