In a rare move to directly intervene in Argentina's financial markets, the United States has taken steps to support President Javier Milei's government as the crucial midterm elections approach.
As the October 26 elections draw near, U.S. Treasury Secretary Bessent has ramped up efforts to stabilize the market. Although official data has yet to be released, market sentiment indicates that the intervention amount exceeds $1 billion. This action comes as the Argentine peso depreciated by 21% over the past four months, trading at the weakest end of the officially set trading range for several consecutive days.
To enhance the effectiveness of the intervention, the U.S. Treasury has also arranged a $20 billion currency swap line for Argentina this month to bolster its dollar liquidity. On October 22, the U.S. Treasury executed its largest single-day dollar sale, successfully reversing the peso's five-day declining trend. The Argentine central bank also intervened in the market for the first time in about a month to defend the peso's exchange rate.
Despite the strong measures, including direct purchases of pesos and provision of currency swap lines, the downward trend of the peso has not been fully reversed. Analysts note that investors remain wary of the political uncertainties brought about by the elections.
Details of U.S. Intervention Emerge To support the peso, Bessent and the Milei government are working together to prevent a potential currency run before the elections. According to media reports citing anonymous traders, the total U.S. intervention could reach $1.4 billion, while a local consultancy has informed clients that the figure is close to $1.7 billion. The U.S. Treasury, Argentine Ministry of Economy, and its central bank have not released official figures, and the Treasury spokesperson did not respond to requests for comments.
Market information indicates that the U.S. Treasury's largest dollar sale occurred on October 22, with traders estimating the volume between $400 million and $500 million. Reportedly, JPMorgan and Citigroup were the two primary dealers representing the U.S. Treasury in selling dollars that day. Prior to this, the Argentine central bank sold $45.5 million on October 21, marking its first intervention in about a month.
The midterm elections on Sunday are viewed as a crucial political test, with results determining public support for Milei's reform agenda and the viability of future reforms.
Oppenheimer's economist Fernando Losada stated, "This is an important move that prevents a deeper deterioration in the valuation of Argentine assets." However, he also pointed out that:
"Despite Bessent announcing the intervention and the U.S. Treasury stepping in to purchase pesos, the exchange rate remains close to the top of the trading range, indicating that even with U.S. Treasury involvement, investors remain cautious about election-related political risks."
Market Reaction Remains Cautious, Exchange Rate Pressure Persists Although the U.S. intervention has provided important support for the peso and temporarily halted a sharp decline in the exchange rate, cautious sentiment in the market has not completely dissipated. The cumulative 21% decline over the past four months, along with the exchange rate lingering at the weak end of the trading range, reflects underlying depreciation pressure.
In addition to direct market operations, the $20 billion currency swap line arranged by Bessent serves as another key support tool, which he describes as a bridge to Argentina's "better economic future." However, as noted by Fernando Losada's analysis, relying solely on external support may not fully alleviate investor concerns until the election results are clear. The market remains closely focused on Sunday’s voting outcome to assess the future governance prospects and reform capabilities of the Milei administration.