Despite multiple interventions by the US Treasury, the decline of the Argentine peso shows no signs of stopping, instead hitting a historic low. On Monday, October 20, the exchange rate of the Argentine peso against the US dollar fell by nearly 1%, reaching its lowest point on record and approaching the bottom of the trading band set by the country in April. This decline follows the US Treasury's repeated purchases of pesos since October 9 and the announcement of a $20 billion currency swap agreement between the two nations.

The core driver of the market turbulence is the investors' deep concern regarding the upcoming mid-term legislative elections on October 26. Analysts note that the support measures led by US Treasury Secretary Benjamin Berseant have failed to quell the significant demand from Argentine investors to buy dollars as a hedge against unfavorable election outcomes.

Ineffective US Interventions To support the peso, the Trump administration has taken a series of actions this month. According to Argentine economists, the US Treasury has purchased around $400 million of pesos since October 9, although both governments have not confirmed this figure. Additionally, the two sides announced a $20 billion currency swap arrangement. Earlier this month, Berseant stated in a television interview that the peso was “undervalued” and intended to "buy low and sell high." Reports indicate that the US is even considering doubling the initial $20 billion swap rescue plan to $40 billion through private arrangements with international banks.

However, confidence in the peso has collapsed in the Argentine market. Investors and the general public are massively converting pesos into dollars, betting on a substantial devaluation of the peso post-election.

Election Uncertainty Overwhelms External Support The market turmoil began last month when President Javier Milei’s party suffered defeats in key local elections. Now, investors are fixated on the upcoming mid-term elections, concerned that Milei may not garner sufficient support to implement his reform agenda. This political uncertainty has directly translated into a sell-off of the national currency. “The demand for dollars remains extremely strong, and this situation will persist until the election results are announced and exchange rate policies are clarified,” said Salvador Vitelli, Research Director at the Romano Group.

Pressure on Foreign Exchange Reserves, Devaluation Expectations Rise The growing panic in the market is worsened by the Argentine central bank's dwindling hard currency reserves. According to Romano Group, after excluding liabilities, the reserves held by Argentine monetary authorities are under $5 billion. The low reserve levels raise concerns that the Milei government may be forced to abandon the current exchange rate band after the elections, allowing significant depreciation of the peso.

This expectation of devaluation is particularly pronounced in the offshore market. Prices for Non-Deliverable Forward (NDF) contracts indicate that the market is pricing in an accelerated depreciation of the peso outside the official trading band. Prices for two-month forward contracts on Monday suggested that the peso could fall below 1600 against the dollar.