Home Business Mexican peso leads gains among Latam peers on rate hike bets

Mexican peso leads gains among Latam peers on rate hike bets

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Mexico’s peso outperformed emerging

market currencies on Wednesday after data showing still rising

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inflation bolstered the case for the central bank to stay

hawkish, while Brazil’s real fell amid price deflation.

The peso rose 0.4% against a stronger dollar,

extending gains to a third straight session, after data showed

consumer prices rose 0.42% during the first half of August,

pushing annual headline inflation to 8.62%, both slightly ahead

of market expectations.

“(The data) raises the risk that Banxico pushes through

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another 75 basis points interest rate hike at next month’s board

meeting,” said Jason Tuevy, senior emerging market economist at

Capital Economics.

The peso, along with Brazil’s real, are among some of the

better performing emerging market currencies this year. The

Mexican currency is up 3% against a more than 5% decline for the

broader emerging markets index.

“The peso should outperform regional peers since the

country’s fundamentals remain stronger than most. Moreover, most

countries in the region are expected to enter a technical

recession and a protracted period of political uncertainty,”

said Joan Domene, senior economist at Oxford Economics.

A rise in the safe-haven dollar, thanks to a weakening euro

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amid recession fears, weighed on riskier currencies as evidence

of cooling growth in China, euro zone and the United States

spooked investors.

All eyes are now on Fed Chair Jerome Powell’s speech at the

Jackson Hole symposium this week for more clues on the extent of

the Fed’s tolerance for weakness in economic growth as its

fights inflation.

In Brazil, meanwhile, data showed consumer price deflation

in the month to mid-August, thanks to tax cuts on key products

and the central bank’s aggressive monetary tightening cycle.

But underlying price pressures still remained high, Capital

Economics said, strengthening the case for a 25 bps hike in

September.

The central has signaled that this may be the last in its

current hiking cycle which saw the key interest rate surge to

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13.75% from 2% in March last year – one of the most aggressive

cycles in the world.

Brazil’s real, which had gained up to 0.5% in

early trade on Wednesday reversed the gains entirely to fall

0.2%.

The data sets come after similar data from South Africa

which showed inflation rising more than expected in July,

keeping up pressure on the central bank to tighten rates.

The South African rand moved away from one-month

lows, trading flat.

Key Latin American stock indexes and currencies at 1939 GMT:

Stock indexes Latest Daily %

change

MSCI Emerging Markets 985.23 -0.44

MSCI LatAm 2229.30 -0.23

Brazil Bovespa 113132.03 0.24

Mexico IPC 47609.41 -0.76

Chile IPSA 5422.87 0.85

Argentina MerVal 139325.00 1.699

Colombia COLCAP 1297.29 0.6

Currencies Latest Daily %

change

Brazil real 5.1066 -0.19

Mexico peso 19.8940 0.39

Chile peso 921 -0.66

Colombia peso 4403.95 -1.20

Peru sol 3.8559 -0.17

Argentina peso (interbank) 137.1300 -0.13

Argentina peso (parallel) 291 2.06

(Reporting by Susan Mathew & Shreyashi Sanyal in Bengaluru;

Additional reporting Ankika Biswas; Editing by Alistair Bell and

Hugh Lawson)

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