At the beginning of 2012, the U.S. dollar (USD) was on track to recover ground lost against the humble Costa Rica colon (CRC) by a healthy margin. Economists and foreign currency analysts still expect a gradual increase on part of the USD against the CRC thanks to several factors; including the certainty that several measures of the Fiscal Reform plan will be implemented in the next few months, and that the cost of living in the United States finally recorded a slight increase.

Last week, the financial news daily El Financiero reported that the growth of USD against CRC had stopped. This week, the initial charge seen at the beginning of the year is now in reverse mode. According to the last blog entry by financial broker Aldesa on Friday, the USD had lost ground by 5 CRC in the local MONEX market.

While the forecast of 540 CRC per USD by the end of the year is still in place, it is important to know the reasons why one USD only yields 506.6 CRC and it seems as if though the private sector took a break from buying USD on the MONEX on Friday.

The CRC is not Losing Value as Expected

While there is a significant budget deficit, the fact remains that the private sector is continuing to experience growth and prosperity, which is probably why the Fiscal Reform plan was voted and approved on first debate. The CRC has actually appreciated 0.7 percent against the USD.

Those who are hoping for a quick appreciation of the USD should remember that the macroeconomic indicators in the United States must improve a little faster than they have thus far to keep the momentum going.

The USD is Tied to Cyclical Events

The biweekly payrolls that take place around each 15^th and 30^th day of each month are highly influential on the MONEX and the exchange rate. In general, major private employers hold on to USD and pay their Tico employees in CRC. This is noticed even more in the first payroll of the month than the second. Currency traders should keep in mind that a massive USD sell-off will happen around each payday, thereby causing the greenback to lose value.

Central Bank Intervention

It pays to follow the amounts of USD that the Central Bank is buying. Thus far, the amounts purchased are not significant, and the current interest rates for CRC deposits are very high.

Should the Federal Reserve in the United States decide to increase interest rates, the Costa Rica Central Bank will probably go into an USD buying spree. That is not likely to happen soon, and thus the USD appreciation is expected to happen slowly.