Latin American currencies rise amid global turmoil

In the first half of 2025, multiple Latin American countries, including Brazil, Mexico, Colombia, and Peru, saw significant gains in their currencies against the U.S. dollar amidst rising global economic tensions. The Brazilian real strengthened by over 11%, followed closely by an almost 9% increase in the Mexican peso. Other currencies like the Peruvian sol and the Chilean peso also recorded notable increases, demonstrating a trend of financial resilience in the region, as reported by JPMorgan Private Bank. Paraguayan economist Víctor Pavón attributed this trend to a perception of Latin America as a more reliable investment destination. However, the strengthening of these currencies is complex and poses potential challenges for the local economies. Daniel Correa, chief economist at DCR Economic and Financial Consulting, emphasized that a stronger currency could hinder future growth if not managed prudently. He noted that the appreciation of currencies might dampen export growth in an environment of stalled trade and inflationary pressures. Correa cautioned that increasing commodity prices could constrain foreign currency supply, raising risks of currency depreciation and hurting export profitability, especially in critical sectors like agriculture and manufacturing, where dollar-denominated contracts are prominent. This scenario led central banks in Brazil, Mexico, and Peru to take swift actions to mitigate external shocks and maintain internal stability. As a result, there is cautious optimism about sustaining currency gains in the coming months. Despite this, experts remain skeptical about the long-term sustainability of these trends amidst ongoing global challenges such as supply chain disruptions and heightened commodity pricing. Another noteworthy perspective shared by Víctor Pavón is the gradual decline of the U.S. dollar's dominance in international trade, which has decreased from nearly 90% to below 70% over recent decades. He noted that this situation reflects not just market shifts but also the strategic decisions taken by authorities, including the Trump administration's tolerance for a weaker dollar to bolster competitiveness against China. This economic strategy aims to preserve the dollar's status as the world's reserve currency while adjusting to the realities of a more multipolar global economy.