The dollar strengthens above $1,500: why the government raised the ceiling and what the market is watching now

The wholesale dollar has risen again and consolidated above $1,500, a level that had served as an informal ceiling for the market in recent weeks. The exchange rate increased by $1.50 this Tuesday, closing at $1,511.50, a new nominal high, despite ongoing signs of official intervention.

This movement deepened the change that began to be observed at the start of the week when the government allowed the exchange rate to surpass a barrier it had been defending through futures operations, the offering of dollar-linked instruments, and liquidity management.

The signal is significant because it comes after several weeks in which the defense of $1,500 coincided with strong tension in the peso market. Now, much of the city reads that greater exchange rate flexibility could help ease interest rates, albeit at the cost of allowing a somewhat higher dollar.

This Wednesday, attention continues on the upcoming fixing of dollar-linked instruments, which will determine the exchange rate used to settle end-of-month maturities. “There is a large maturity fix of dollar-linked instruments, which could explain part of the pressure; we will see how it continues in the coming days,” market operators noted.

The break of $1,500 does not imply that the government has withdrawn from the market. On the contrary, operators continue to detect a strong supply of coverage through dollar-linked instruments, while last week there was also greater participation from the BCRA in futures.

Portfolio Personal Inversiones (PPI) highlighted the strong growth in the volume traded in the shortest dollar-linked note: the D31G6 traded $168 million, more than double the $77 million from Friday.

For the brokerage firm, the movement “could be a signal that the BCRA has intervened in the secondary market for indexed instruments.”

The context is particular. The Treasury recently managed to exchange only 34.12% of the dollar-linked instruments maturing on August 31, leaving around $2.595 billion that will need to be addressed by the end of the month.

Hence, the market remains particularly attentive to the demand for coverage and the official strategy during the upcoming sessions.

In recent weeks, the defense of the informal ceiling of $1,500 had a counterpart: the strong volatility of interest rates. With fewer pesos available in the system, short-term rates reached levels not seen since February. In light of this scenario, allowing a bit more movement in the dollar appears to some analysts as a way to decompress the monetary market.

Gabriel Caamaño, director of Outlier, considered that, once “the ad hoc ceiling of $1,500 is relaxed,” “the peso rate and its volatility should ease.”

In the same vein, Pablo Repetto, Head of Research at Aurum Valores, downplayed the importance of having surpassed that level and considered it to be “a relatively normal correction.” He even pointed out that the dollar could settle somewhat higher without necessarily signaling alarm.

Economist Federico Glustein, for his part, suggested that behind the recent dynamics lies the dilemma between using a contained dollar to help with inflationary deceleration or allowing lower rates to support economic activity.

The discussion now revolves around determining how far the government is willing to let the exchange rate advance. José Ignacio Bano argued that, in the long term, “it is reasonable for the dollar and inflation to go hand in hand” and warned about the risk of maintaining a stable nominal exchange rate for too long while prices continue to rise.

For now, the break of $1,500 seems to mark a flexibility rather than an abandonment of the official strategy. The government continues to offer coverage and manage the amount of pesos, but has stopped rigidly defending a specific value for the wholesale dollar.

Thus, with the dollar already established above $1,500, **the focus shifts to how much further it can advance without generating inflationary pressure again and whether this greater flexibility effectively allows for a more sustained decrease in peso rates.

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