Peruvian Sol Will Weaken Slightly In 2022 As Copper Prices Dip In H2 2022

• Fitch forecasts the Peruvian sol (PEN) will average PEN3.77/USD in 2022, from PEN3.88/USD in 2021, as favourable terms of trade have supported the currency through Q1 2022. 
• However, the PEN will weaken slightly in the coming months, as copper prices are likely to edge lower and Peruvian interest rates remain below those elsewhere in the region, weakening the sol’s attractiveness to investors. 
• Of note, the PEN, along with other commodity currencies has continued to rally following the Russian invasion of Ukraine on February 24, which has since kept commodity prices above historical trends. That said, while the exchange rate has tested multi-year resistance at PEN3.64/USD, Fitch believes it will struggle to break through this key level, as the factors that have driven the unit higher begin to fade over the coming quarters. 
• Consequently, the Agency expects a further, albeit modest depreciation in 2023, to an average of PEN3.84/USD, as inflation remains higher in Peru than in the United States and terms of trade weaken slightly as copper prices ease.

(Source: Fitch Solutions)