Latin American currencies appreciated sharply against the USD during the first half of 2023 as local political uncertainty dissipated and most central banks maintained tight interest rate policies. However, this strengthening was short-lived because some monetary authorities began to cut rates as inflation eased consistently, specifically in Brazil, Chile, Peru, and Uruguay. The currencies of those economies are set to weaken further, not only because the local central banks keep cutting rates but also because the US Federal Reserve maintains the fed funds rate at unchanged, record-high levels.

The best-performing currency in Latam has been the Colombian peso, which has appreciated by 17% since the beginning of the year as of early December, followed by the Mexican peso, which strengthened by 11%, and the Brazilian real, which posted an 8% appreciation. The local currencies of Chile, Peru, and Uruguay follow with a rather moderate appreciation of 3% each. Argentina is an atypical case, registering a depreciation of 100% in its official currency since the beginning of the year.

While a stronger currency could attract capital flows into a given country, weaker FX rates usually support exports and tourism, as purchases become cheaper for holders of stronger currencies.