03 Jun 2026

Election relief still needs a test

The Colombian peso finally got the break it had been missing for months: the first round of the presidential vote triggered a wave of buying in local assets and pushed the dollar back below 3,600. But that relief came from a political reading, not from a repaired macro backdrop. When enthusiasm depends on a runoff, markets still charge a premium for doubt.

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Analysis

Four signals behind the celebration and its limits

Between May 31 and June 2, Colombian markets sent a clear message: they welcomed the electoral surprise, cut peso risk and rewarded the prospect of a more investment-friendly turn. The problem is that one euphoric session does not fix the fiscal front on its own, nor does it erase the volatility likely to dominate the three weeks before the runoff.

The political shock did move prices
Immediate reaction
Reuters tracked an unusual jump On June 1, Reuters reported that the peso appreciated 3.75% to 3,551 per dollar in the opening minutes after Abelardo De la Espriella won 43.7% of the vote versus Ivan Cepeda's 40.9%, forcing a June 21 runoff.
The market's interpretation was explicit The move did not follow a new productivity figure or an already delivered fiscal repair. It reflected the view that a political shift could favor hydrocarbons, a smaller state, and a more credible stance on public finances.
It was not only the peso
Risk premium
Stocks, TES and CDS improved too EL PAIS reported on June 2 that the Colcap closed up 3.6%, the dollar fell 3.6%, and the five-year CDS dropped 35 basis points intraday. Five-year TES yields also moved lower, a clear sign of stronger appetite for Colombian debt.
That matters more than a single close When the risk premium falls at the same time the peso strengthens, the message is broader: investors wanted to price in less fiscal deterioration and less hostility toward private capital. That is a tactical vote of confidence, not a full acquittal.
The world was still pushing the other way
External backdrop
Colombia rallied against the regional trend Another Reuters dispatch, published by MarketScreener on June 1, noted that most Latin American currencies were falling that day because of fears around the fragile ceasefire between the United States and Iran, with oil up about 5% and the global dollar firmer.
That makes the rebound more fragile If the peso improved despite a hostile global backdrop, the impulse was clearly domestic. But that same feature makes it vulnerable: any electoral or institutional noise can quickly return markets to their earlier logic, especially while the external setting stays uncomfortable for emerging currencies.
Macro has not signed the peace deal
Economic backdrop
The next president inherits a heavy bill Reuters had already warned on May 29 that whoever wins will need to stabilize public finances, reduce poverty and restore growth. That burden does not disappear because one currency session looked cheerful.
BanRep is still watching inflation and deficits Banco de la Republica's April Monetary Policy Report said headline inflation reached 5.6%, core inflation 5.8%, and the bank projects 6.4% by December, with risks tied to the fiscal outlook and the exchange rate. In market terms, there is still a case for high rates and caution on the peso.

What happened after the first round should not be minimized. Markets were direct: they rewarded the possibility of a turn that is less hostile to capital, closer to fiscal adjustment, and more willing to defend sectors that still matter for Colombia's dollar inflows. However uncomfortable that may be for the governing left, the message was visible in prices.

But it would be a mistake to confuse relief with a solution. Three weeks of campaigning can easily reopen volatility, especially if institutional noise returns or if either side starts selling spending plans without a credible anchor. Monday's rebound itself made the point: the peso was not waiting for a productivity miracle. It was waiting for a less threatening political signal on investment and fiscal discipline.

The exchange-rate thesis for now is simple: the dollar can keep easing if markets believe political risk is falling and that the next government will not keep stretching spending as if confidence were infinite. But if this electoral relief does not become a serious commitment to public finances and to BanRep's technical autonomy, demand for dollar hedges will come back faster than the euphoria lasted.