(Bloomberg) -- Colombian traders are bracing for a volatile session Monday after a dispute with the US over deported migrants triggered a brief threat of tariffs from President Donald Trump.
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The South American nation reversed its decision to reject the return of the migrants after Trump announced an emergency 25% tariff on all Colombian goods coming into the US. That call had sparked warnings of a deep selloff in Colombian assets and a slide in emerging-market currencies globally with the Mexican peso weakening more than 1%.
Trump to Hold Off on Colombia Tariffs, Reaches Deal on Migrants
“The Colombian peso will benefit from the market’s relief on the White House’s latest announcement, but the currency and its regional peers will have to factor in the prospect of the risk of similar tactics being tried again in the future,” said Homin Lee, a Singapore-based senior macro strategist at Lombard Odier. “We remain relatively cautious on the economy and its currency for the time being.”
The whiplash in tariff headlines will likely reverberate across local bond, currency and equity markets when trading opens Monday.
Before the announcement of a deal, Daniel Velandia, chief economist at Credicorp Capital Colombia, said the peso would weaken against the dollar Monday morning, adding that the economy could inch toward a recession in an “extreme scenario,” in remarks to Bloomberg News.
Trump earlier ordered a 25% tariff, which would have been raised to 50% in one week. Colombia President Gustavo Petro later said he would impose retaliatory tariffs on goods from the US.
Emerging currencies, which were hammered in late 2024 amid concerns around Trump’s policies, climbed last week as a softer-than-expected roll-out of US tariffs and the absence of new levies on Chinese imports eased fears of a widespread trade war. High-yielding Latin American names, including Colombia’s peso, paced the gains.
The rapid resolution for Colombia will do little to quell investor uncertainty over Trump’s usage of tariffs, as it has become clear that trade will be his first weapon of choice in any policy disagreements.
“Most investors had the idea that Colombia could be a bit removed from the main stage of tariff risk and had been willing to enter into COP carry positions recently,” said Gilberto Hernandez-Gomez, Latin America local market strategist at Banco Bilbao Vizcaya Argentaria SA, in comments to Bloomberg News before the deal was reached. “Now the risk premia will increase.”