Argentinean Peso Slumps After FX Band Reset

The Argentine peso weakened past 1,450 per US dollar, nearing record lows as the central bank’s decision to link the FX trading band to inflation effectively accelerated the pace of depreciation and reset expectations toward a weaker nominal path. By replacing the pre-set 1% monthly crawl with adjustments tied to monthly inflation running near 2.5%, policymakers formally sanctioned faster peso losses, prompting corporates and households to bring forward dollar demand and increase hedging activity. At the same time, plans to rebuild depleted reserves through gradual dollar purchases while expanding the monetary base toward 4.8% of GDP reduced the Bank’s near term capacity to lean against currency pressure, particularly in a shallow FX market. These policy shifts collided with a fragile external position, sizable near term debt service requirements, and still limited reserve buffers, intensifying pressure at the upper end of the trading band.

The Argentine peso strengthened past 1,400 per US dollar, recovering from its October 24th record low of 1,492.2 after Argentina’s midterm elections delivered about 41% of the national vote to President Milei’s coalition and a materially larger congressional presence, which raised odds of credible fiscal consolidation, deregulation and privatization. That political clarity narrowed perceived sovereign risk and raised confidence that recent progress on inflation and the fiscal balance will be preserved. At the same time, a reported US support package of roughly 40 billion dollars, including a 20 billion dollar swap and matching private financing arrangements, supplied near term external liquidity that eased rollover pressures and allowed sovereign spreads and bond yields to tighten. The rally is powerful but conditional on continued fiscal discipline, timely reform implementation and sustained foreign financing.

The Argentine peso weakened past 1,450 per US dollar and slid back toward its record low of 1,475 from September 19th after a brief recovery as political and policy uncertainty ahead of the October 26th midterms collided with doubts over the size and immediacy of US support, triggering heavy FX outflows, a repricing of devaluation risk and a rush into forward protection. Markets initially cheered talk of a $20 billion swap framework but the deal’s opaque timing and activation conditions, mixed public comments from Washington and a high-profile warning that US help could be contingent on the election outcome undermined that confidence. Even after limited Treasury peso purchases, the official exchange rate and short-dated forwards moved sharply lower, reflecting banks’ and corporates’ hedging and funding stress. Against a fragile reserve position and large near-term external obligations, traders have instead priced a higher chance of a post-election policy shift.