Currency appreciation slows and pressure on the dollar grows ahead of the elections.

In recent weeks, a pause in the exchange rate appreciation process has been evident, one of the factors that had sustained the financial calm during the first half of the year. Since the introduction of the floating exchange rate band system, the peso has stopped gaining value against the dollar , even with inflation declining, reaching 1.5% in May.

However, the figure that raised alarm bells was the first-quarter current account deficit, which exceeded USD 5.1 billion. This is the first significant deficit since Javier Milei took office and is due to two key factors: the jump in imports due to the economic recovery and a sharp increase in travel abroad.

Finance Secretary Pablo Quirno downplayed the concern: " The dollars spent abroad belong to Argentines, not the state ." The "Travel" category posted a record deficit of USD 3.464 billion, with a negative difference of nearly six million tourists between January and May alone.

Milei also addressed the phenomenon and defended it as an expression of individual freedom: "They prefer to earn miserable wages so you can't go anywhere."

Although inflation remains low, June is expected to show a slight upturn. Several consulting firms estimate it will approach 2%. The multilateral real exchange rate, according to Central Bank data, has risen 10% since the floating rate was implemented, indicating that the economy has stopped becoming more expensive in dollar terms.

However, with the arrival of July, a lower supply of foreign currency is anticipated due to seasonal reasons and the end of the reduced soybean retention regime. Added to this is the traditional pre-election demand, which could put renewed pressure on the dollar.

The economic team assures that the current account deficit is not alarming. José Luis Daza , Secretary of Economic Policy, estimated that the deficit will be only around 2% of GDP in 2025. He also emphasized that much of the increase in imports is due to the recovery in economic activity.

The government is betting that the dollars flowing out of the current account will be offset by inflows from the capital account. Vladimir Werning , vice president of the Central Bank, announced that work is underway on alternatives such as bond issues, agreements with international banks, and Treasury purchases, which have increased reserves to USD 41.4 billion.

Market Outlook

Although the government is prioritizing reducing inflation in the immediate future, analysts point out that the strategy could change after the elections. The consulting firm Invecq warned that while the executive branch is not publicly concerned about reserves or the real exchange rate, it could adopt a more interventionist stance at the end of the year.

The country risk remains close to 700 points, with expectations of a drop to 500 points if a strong election result is achieved . Next week, the government will face debt payments of more than USD 4 billion, which could improve the perception of solvency if part of these funds are reinvested in the local market.

After a positive 2023, local financial assets faced a more volatile first half of the year. The Merval dollar index has lost nearly 25% so far in 2025, in contrast to the performance of regional markets. The rebound in sovereign bonds, which had doubled in value the previous year, also slowed.

Looking ahead to the second half of the year, the government needs to show concrete progress in reserve accumulation, sustained inflation, and political predictability to regain investor interest . The October elections will be decisive for the country's economic future.