The Colombian Peso has been one of the standout performers among high-yield currencies in recent times, but TD Securities argues the support underpinning that strength is starting to run thin. According to the firm, the domestic mix of tight monetary policy and loose fiscal policy that has kept the peso firm is becoming less supportive going forward. Practically, that means USD/COP has increasingly limited room to fall below the 3000 level, while the pair is becoming more exposed to sharp upside moves if a global risk-off shock hits.
The Election Rally and the Fair Value Math
TD Securities notes that the peso rallied sharply following Colombia's presidential election in the second quarter of 2026. At present, both the short and long-term fair values for USD/COP sit within the 3200-3300 range. That is exactly why the pair's selloff toward 3000 in August did not hold, quickly reverting back to the 3100-3200 band. In other words, the market itself appears to be pricing in a natural floor for peso strength, one that a further push beyond fair value tends to correct fairly quickly.
Why the Central Bank's Support Is Fading
Banco de la República's hiking cycle is now nearing its end. TD Securities said plainly, "we see little reason for BanRep to hike policy rate close to 2022 levels." The aggressive rate increases that helped make the peso attractive to yield-seeking investors in past years are running out of runway. When a central bank stops raising rates, the incentive for foreign capital to chase higher returns in that currency naturally starts to fade too.
Inflation Has Fallen Sharply, Cutting the Case for High Rates
The scale of the rate hikes in the first place was driven by inflation. Domestic inflation in Colombia stood at more than 13% in 2022, compared with around 6% in 2026. That sharp decline means the central bank has far less justification to keep rates elevated. The tight monetary policy that has been a pillar of peso strength is, in effect, losing its own underlying rationale.
Fiscal Shift Under De La Espriella
The other pillar behind the peso's gains has been a loose fiscal stance, essentially generous government spending. But the market now expects fiscal consolidation under De La Espriella. TD Securities said it is difficult to see Colombia maintaining the same level of positive fiscal impulse it has delivered in past years. When government spending is reined in, the economy loses some of the extra momentum that had also been propping up the currency.
What It Means for USD/COP Going Forward
TD Securities was careful to note that Colombia is not immediately shifting into a loose monetary and tight fiscal combination that would be outright bearish for the currency. But domestic conditions are evolving enough to effectively cut off the left tail below 3000 in USD/COP. The upshot is that any risk-off shock, whether from geopolitical tension or a broader bout of global market anxiety, is now more likely to push USD/COP sharply higher than it is to drag it lower. The balance of risk for the peso, in other words, has tilted from downside to upside.
