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Colombian Peso Drops Most in a Month on European Debt Concerns

Colombia’s peso fell the most in a month as concern Europe’s rescue plan for Greece will unravel led investors to drop higher-yielding, emerging-market assets.

The peso sank 1.4 percent to 1,891.52 per U.S. dollar, from 1,865.75 yesterday. That’s its biggest drop since Oct. 3.

Global stocks fell and emerging-market currencies declined as Greek Prime Minister George Papandreou called a referendum and a parliamentary confidence vote, risking pushing the country into a disorderly default if rejected by voters. Greece’s referendum poses a threat to financial stability in the euro region, Fitch Ratings said.

“Local investors are taking refuge in the dollar,” said Daniel Velandia, the head analyst at Correval SA brokerage.

Colombia’s central bank on Oct. 28 said that in a bid to ease the peso’s volatility, it will sell $200 million in dollar options when the currency’s 20-day moving average changes by more than 4 percent. The options replace the $200 million the central bank had said last month it would auction in the spot market when the peso’s 10-day moving average changed by more than 2 percent.

Investors should bet the Colombian peso will weaken to 1,930 per dollar, Diego Donadio, a Latin America currency strategist at BNP Paribas, wrote in note to clients today.

“While the recent softening of the foreign exchange measures could be seen as positive for the Colombian peso (and it certainly was), that should not be used as an excuse to call for Colombian peso decoupling from the world,” Donadio wrote. “Moreover, we still have the risk of a squeeze of U.S. dollar cash as the year-end approaches.”

The yield on Colombia’s benchmark 10 percent bonds due in July 2024 fell one basis point, or 0.01 percentage point, to 7.45 percent. The price rose 0.089 centavo to 120.440 centavos per peso.

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