The Colombian peso’s stunning rally lost momentum this week as the local financial system ran short of dollars, exposing the limits of the currency’s carry appeal.

The currency, which had been a standout performer, is now facing headwinds due to a shortage of dollars in the local market. This has undermined the attractiveness of carry trades, which rely on stable funding conditions.

The situation highlights the fragility of emerging market currencies that depend on external funding. Investors are reassessing their positions as the liquidity squeeze takes hold.

Analysts are closely watching the central bank's response to the dollar shortage, which could determine the peso's near-term trajectory.