Argentina peso breaks losing streak amid FX intervention

Argentina's peso strengthened, snapping a five-day losing streak amid continued market intervention by both the local and US governments.

President Javier Milei and US Treasury Secretary Scott Bessent are trying to stave off a run on the currency with just days to go before a crucial midterm vote for the libertarian Argentine leader. The peso came within cents of breaching its trading band Tuesday, prompting Argentina's Central Bank to step in to prop it up for the first time in about a month. The US Treasury also intervened, according to people with knowledge of the matter.

The currency gained as much as 0.6 percent in early trading Wednesday before paring the advance to just 0.2 percent to trade around 1,487 pesos per dollar. The weakest limit of the trading band, which expands each day, stands at 1,491.6. Argentina’s dollar bonds were down across the curve, with notes due in 2035 falling by one cent to trade at 55 cents on the dollar, according to indicative pricing data compiled by Bloomberg.

Bessent confirmed the signing of a US$20-billion swap line with Argentina a day earlier, calling it “a bridge to a better economic future for Argentina, not a bailout.” His efforts to line up the same amount of private-sector funding for the crisis-prone South American nation, however, remain unfulfilled as banks seek clarity on terms, structure and collateral. 

Draining the US$20-billion swap line to defend Argentina’s currency “could quickly tip the scales unfavourably,” Juan Manuel Pazos, an economist at local broker One618, wrote in a report this week. “If the intention is to uphold the FX regime for some time, then the second US$20-billion bailout from banks would probably be necessary.”

Milei’s economy chief, Luis Caputo, reiterated in a post on X Wednesday that there would be no changes to foreign-exchange policy. The peso’s trading bands, established in April as part of Argentina’s agreement with the International Monetary Fund, are increasingly viewed by investors as supporting an overvalued currency. 

Traders are watching potential moves in Milei’s Cabinet. Argentine Foreign Minister Gerardo Werthein, who has been a key participant in talks with the US, offered his resignation on Tuesday evening, according to a report by local newspaper La Nación, citing unnamed government sources. 

Political tension is also intensifying in the United States. In response to Democratic Senator Elizabeth Warren’s criticism of US spending during the government shutdown, Bessent described the Trump administration’s effort to prop up Argentina as “mission critical.” The use of Treasury resources “provides targeted backing to a key ally that has pursued fiscally responsible policies and economic freedom,” he said in a letter to Warren dated Tuesday.

Argentine markets, meanwhile, are showing signs of exhaustion from the barrage of social media messages posted by both US and Argentine authorities, according to Joaquín Bagues, managing director at local broker Grit Capital Group. “Right now is pay per view,” he said. “The market will buy in when it has more certainty.”