Uruguay: Uruguayan peso hits a multi-year low in September
October 9, 2015
In September, the Uruguayan peso weakened to a multi-year low against the U.S. dollar, continuing the general depreciating trend that has been in place since June 2013. On 25 September, the peso traded at 29.2 UYU per USD, which was 2.1% weaker than on the same day of the previous month and 18.5% weaker in annual terms. The depreciation of the Uruguayan currency was mainly driven by increased demand for U.S. dollars, which is putting pressure on the peso. Demand for the U.S. dollar picked up as aversion to riskier currencies rose over increased uncertainty in emerging markets and expectations of a looming U.S. interest rate hike. The Uruguayan currency has lost 19.7% of its value since the beginning of this year. At the beginning of October, the peso traded close to September’s multi-year low.
The Central Bank continued to intervene in the foreign exchange market in order to smooth the weakening of the peso and to soften the depreciation pass-through effect to consumer prices. Nevertheless, the weakening of the currency has pushed inflation to very high levels. In fact, inflation reached its highest value in over-a-year-and-a-half and stood at 9.5% in August. In September, inflation moderated only slightly. In Uruguay, authorities are particularly keen to keep inflation below 10.0%, which is the ceiling above which labor contracts are entitled to a new round of wage negotiations.