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Price of the Dollar in Colombia today, Thursday, July 11: The Colombian Peso reaches a one-month high

The US Dollar fell for the tenth consecutive day against the Colombian Peso, plummeting to a one-month low of 3,940.04. Earlier, the USD//COP touched a daily high of 4,005.27.

USD/COP is trading at 3,966.99 at the time of writing, down 0.06% on the day.

Colombian Peso Benefits from Moderating US Inflation

  • The US Consumer Price Index (CPI) fell three-tenths of a point in the year-on-year reading for June, standing at 3% compared to 3.3% in May, its lowest level in a year, according to the Labor Department. The figure is better than the 3.1% expected by the market.
  • The sharp decline in the dollar following the softening of inflation gives the US Federal Reserve reasons to make its first rate cut of the year at its meeting in September. The FedWatch tool estimated the chances of such a cut at 78% immediately after the publication, when yesterday it was below 72%.

US Dollar FAQs

The United States Dollar (USD) is the official currency of the United States of America, and the de facto currency of a significant number of other countries where it is in circulation alongside local banknotes. As of 2022, it is the most traded currency in the world, accounting for over 88% of all global foreign exchange transactions, equivalent to an average of $6.6 trillion in daily transactions. Following World War II, the USD took over from the British Pound as the world’s reserve currency.

The single most important factor influencing the value of the US dollar is monetary policy, which is determined by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and to promote full employment. Its main tool for achieving these two goals is to adjust interest rates. When prices rise too quickly and inflation exceeds the Fed’s 2% target, the Fed raises rates, which helps the dollar. When inflation falls below 2% or the unemployment rate is too high, the Fed can lower interest rates, which weighs on the dollar.

In extreme situations, the Federal Reserve can also print more dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a jammed financial system. It is an unconventional policy measure used when credit has dried up because banks are not lending to each other (for fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis of 2008. It involves the Fed printing more dollars and using them to buy US government bonds, primarily from financial institutions. QE typically leads to a weakening of the US dollar.

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal of maturing securities in new purchases. It is generally positive for the US dollar.

Source: Fx Street

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