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Wells Fargo Expecting Sharp Peso Devaluation

ARGENTINA
  • So far, the peso has not come under significant stress, in either official or unofficial markets, a change in the currency's behavior from Milei's surprise PASO election victory. With that said, Wells Fargo continue to believe Argentina's currency is set for a sharp devaluation in the coming weeks/months.
  • The devaluation is not necessarily in response to Milei's victory, but rather the central bank having depleted FX reserves and having limited buffers to maintain peso stability. As a function of limited options to maintain the peso at current levels, Wells Fargo believe an FX adjustment is imminent and that selloff could be as much a 20%.
  • In addition, should Milei deliver on lifting capital controls, the magnitude of the selloff could be more intense. Right now, the peso is trading at much weaker levels in unofficial markets than official exchanges. Should controls and dollar-buying restrictions be removed, the official peso exchange rate could move toward matching the unofficial exchange rate.
  • Milei will be inaugurated toward the end of December, and in the meantime, Wells Fargo will be watching who he appoints to key cabinet positions. Appointees aligned with market-friendly policies with a track record of implementation should be well-received by markets. WF will also be listening for rhetoric on capital controls and when an FX devaluation could occur.
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