Chile’s currency experienced a significant reversal on Thursday, erasing its year-to-date gains as global demand for dollars and oil increased amid heightened geopolitical tensions. Investors are closely watching the duration of the conflict in the Middle East and its potential repercussions for the global economy.
The Chilean peso closed at 914.2 per U.S. Dollar, a jump of $16.3, marking the weakest level since December 29, 2025, according to Bloomberg data. This move reflects increased risk aversion in emerging markets, particularly for economies sensitive to energy costs.
The dollar index rose 0.5% to a six-week high, supported by a 5-basis-point increase in U.S. Sovereign interest rates. Meanwhile, Comex copper prices fell 1.6% to $5.82 per pound, while Brent crude oil advanced 5% to $85.4 a barrel – a level not seen since mid-2024.
Looking Ahead
Nearly all emerging market currencies weakened on Thursday, with the Chilean peso among the worst performers due to its exposure to rising energy costs. The peso’s recent strength had been driven by optimism surrounding the modern government and expectations of structural and macroeconomic improvements, but those gains are now being challenged.
“The peso’s reaction isn’t an overreaction,” said Cynthia Kirby, senior economist at AICapital. “The market had particularly positive expectations for the new government, and that’s why capital started flowing into the peso and fixed income. But for that to be sustained, results need to materialize, and there’s nothing to indicate yet.”
“A shock of this magnitude is very significant. If it weren’t, we wouldn’t see a stampede like this against the peso and the Chilean stock market. This shows that we are still a country that doesn’t have the strength to absorb this type of strong external shock. And economic agents are assigning a higher probability that this will become much more complicated and lead to an economic and inflationary crisis worldwide,” Kirby continued.
The local currency had previously closed lower on Wednesday following a period of reduced international tension.
Data from the Central Bank confirmed the role of foreign investors in the significant rise of the dollar on Tuesday, when it increased by almost $40 amid panic over escalating hostilities in the Persian Gulf.
Non-residents purchased approximately US$1.78 billion in foreign currency through derivatives, bringing the net position to around US$7.9 billion against the Chilean peso. Other Central Bank series, specifically tracking dollar-peso forwards since 2008, show a US$1.85 billion variation, unprecedented in recent history.
“The broader risks to the peso remain unresolved. Heading into the weekend, markets may be reluctant to re-engage aggressively with risk, suggesting that $885 and $910 is the short-term trading range,” published the BBVA strategist team led by Alejandro Cuadrado.
“While the rebound in copper offers support, Chile’s open economy and sensitivity to global risk conditions imply that sustained peso gains may require further improvement in external sentiment,” they predicted.
More oil tankers have been attacked in the Gulf of Persia, and Iran recently claimed to have targeted an American freighter, after Tehran suffered a new wave of Israeli bombings.
U.S. Secretary of Defense Pete Hegseth added to the uncertainty on Wednesday afternoon, stating that military operations “could last six, eight, or three weeks.” The Israeli ambassador to the UN added that Iran still has “significant capabilities” and that “there is still a long way to head.”
News that China set a growth target of between 4.5% and 5% for this year, the lowest range in decades, amid deflationary pressures and increased trade tensions with Washington, too weighed on the Chilean peso.
The U.S. February nonfarm payrolls report will be released on Friday. The economy was in good shape before the outbreak of war, as evidenced by the ISM services index published on Wednesday, which showed upside surprises in activity and downside surprises in the inflation component.
