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Latin American currencies plunged on
Tuesday as the dollar surged after data showed monthly U.S
Latin American currencies plunged on
Tuesday as the dollar surged after data showed monthly U.S
consumer prices unexpectedly rose in August, fanning fears of
aggressive rate hikes in the world’s largest economy.
The U.S. consumer price index gained 0.1% last month after
being unchanged in July, the Labor Department said. Economists
polled by Reuters had forecast a dip of 0.1%.
All major currencies were in the red, with Colombia’s peso
, Mexico’s peso and Chile’s peso down more
than 1% each.
“We’re at a point where inflation (in Latam) is starting to
cool faster than U.S. inflation and that differential creates
risks for those currencies,” said Edward Al-Hussainy, senior
analyst at Columbia Threadneedle.
“Many Latam central banks are coming to the conclusion that
they’ve broken inflation domestically, and therefore, their
hiking cycles are likely to come to an end before the end of
this year,” added Al-Hussainy.
“On the other hand, clearly the Federal Reserve hiking cycle
isn’t anywhere near done, so it creates a window for the dollar
to strengthen again.”
The Fed is seen delivering a third straight 75-basis point
rate hike next week, futures contracts tied to the Fed’s policy
rate showed.
“When (the Fed) starts to telegraph the rate increases are
near the end, you’ll see (Latam) markets snap back into gear,”
said Robert Lutts, chief investment officer at Cabot Wealth
Management.
The dollar index pared earlier losses to jump 1.04%
following the CPI data. Broader EM currencies
reversed gains from earlier in the day to eye their worst day so
far this month.
Brazil’s real led Latam losses, plunging
1.5%, looking past upbeat data that showed services activity in
the country rose 1.1% in July from June, above the median 0.5%
increase forecast in a Reuters poll.
Regional stocks and currencies
were set to snap a three-day winning streak as worries
re-emerged over cost pressures and economic growth amid rising
fears of a recession.
On Monday, Chile’s government launched a plan to promote
investment into 2023 that includes an array of tax breaks for
the world’s largest copper producer at a time when its economy
is faltering.
Elsewhere, Colombia’s government wants to expand its budget
for 2023 by 14.3 trillion pesos ($3.28 billion), a finance
ministry spokesperson said.
Ecopetrol inched 0.1% higher. The Colombian
state-run oil company asked the oil regulator to suspend
contracts for two fracking pilot projects for 90 days, the firm
and two sources told Reuters.
Meanwhile, Argentina’s inflation rate, heading towards 100%
this year, likely eased in August versus a 20-year peak the
month before, analysts polled by Reuters said.
Key Latin American stock indexes and currencies at 1441 GMT:
Stock indexes Latest Daily % change
MSCI Emerging Markets 978.59 -0.05
MSCI LatAm 2207.06 -1.53
Brazil Bovespa 112531.66 -0.77
Mexico IPC 47781.45 -0.17
Chile IPSA 5623.86 0.49
Argentina MerVal 145682.47 0.669
Colombia COLCAP 1238.96 0.28
Currencies Latest Daily % change
Brazil real 5.1645 -1.33
Mexico peso 20.0628 -1.21
Chile peso 912.5 -1.59
Colombia peso 4415.95 -1.40
Peru sol 3.8521 -0.28
Argentina peso 142.5700 -0.20
(interbank)
Argentina peso 268 1.49
(parallel)
(Reporting by Anisha Sircar and Amruta Khandekar in Bengaluru
Editing by Marguerita Choy)
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