Argentina’s Peso Weakens Past Key Level in Parallel Market

(Bloomberg) -- Argentina’s parallel exchange rate weakened past a key threshold on Friday, as demand for assets in hard currency climbs ahead of the country’s midterm elections in November.

The blue-chip swap exchange rate, derived from buying shares locally and then selling them abroad for dollars, weakened to 201.6/USD at 1:42 p.m. in Buenos Aires. The spread between the official peso and the blue-chip rose to 102.3%, up from 100.5% yesterday, its widest in at least a year.

Read More: Argentines Are Rushing for Dollars as Devaluation Bets Soar (1)

Argentine investors have grown increasingly pessimistic on the peso, betting that the government will be forced to speed up devaluation after November elections. President Alberto Fernandez’s administration has insisted on a slow depreciation of the official exchange rate, keeping the currency overvalued via strict capital controls to protect reserves as it tries to tamp down on inflation running at more than 50% annually.

“This pressure is exactly what’s necessary for Fernandez to moderate,” said Siobhan Morden, head of Latin America fixed income at Amherst Pierpont in New York. The government’s “policies are now fully reaching an inflection point, now that net liquid foreign reserves are negative.”

The government says it will continue implementing the currency policy laid out in the 2021 budget, and that a sudden jump in the exchange rate isn’t forecasted or planned, Economy Minister Martin Guzman said on Thursday.

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