Colombian Peso Set to Lose Favor as Hiking Cycle Nears End

The Colombian Peso (COP) has been a top performer in recent years due to its supportive mix of tight monetary and loose fiscal policy, according to TD Securities. However, this favorable environment is expected to fade soon as the Banco de la República's (BanRep) hiking cycle nears its end. The market expects fiscal consolidation under De La Espriella, which will limit the peso's upside potential.

TD Securities notes that domestic conditions will increasingly limit USD/COP downside below 3000, leaving the pair more exposed to asymmetric upside risks on risk-off shocks. Current short and long-term fair values for USD/COP both sit within the 3200-3300 range, which suggests that the recent selloff toward 3000 in August was temporary.

The Colombian Peso has seen significant strength since the presidential election in Q2 '26, with domestic inflation decreasing from over 13% in 2022 to 6% in 2026. While this shift is expected to continue, TD Securities warns that the peso's upside potential will be capped by the evolving domestic conditions.