Wounded Latam currencies stage recovery against toppling dollar

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Currencies in Latin America advanced

against a retreating dollar on Tuesday, with Mexico’s peso

rising after new inflation estimates fueled bets that the

central bank will hike interest rates again at its upcoming

meeting.

Inflation in Latam’s second-largest economy in the first

half of July likely remained at levels not seen since January

2001, a Reuters poll showed, raising bets the Bank of Mexico

will increase its key rate once again at its August meeting

following a record 75 basis point hike in June.

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The country’s economy likely grew by 2.1% in June compared

with a year earlier, but relative to the previous month,

activity is expected to have contracted by 0.4% in June,

estimates from the national statistics agency showed.

“A (recovery in currencies) comes on the back of very large

falls last week, (but) it’s going to be a challenging

environment over the rest of the year if the U.S. Federal

Reserve is tightening aggressively,” said William Jackson, chief

emerging markets economist at Capital Economics.

The dollar eased from two-decade highs as markets

pared bets of a 100 basis point hike by the Fed next week.

Brazil’s real gained 0.9%.

President Jair Bolsonaro invited the diplomatic corps on

Monday to hear his charges that Brazil’s election system was

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open to fraud ahead of October elections in which he is trailing

in a bid for a second term.

“We’ve seen big swings in the real over the past year

triggered by perceived political risk, but now, a lot of that

bad news is priced in, so a Lula government proving to be more

moderate might help support the currency,” added Jackson.

Chile’s peso jumped 2%, leading regional gains for a

third straight day after an intervention last week by the

central bank propped up the struggling currency, while

Colombia’s peso inched up 0.3%.

Resource-rich Latam currencies have come off highs hit

earlier this year as a commodity boom loses steam on global

growth and demand fears, while concerns of a recession, rising

interest rates and inflation dynamics have sent stocks in the

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region tumbling 7% this year.

Stocks were 0.5% higher, as Brazil’s

heavyweight Bovespa boosted shares with a 0.7% lift.

Brazil’s Embraer SA rose 1.7% after the planemaker

announced a partnership with BAE Systems PLC to expand

their footprint in the global defense market.

Elsewhere, sovereign dollar bonds issued by Pakistan

hit fresh record lows after ratings agency

Fitch cut the country’s outlook to “negative” from “stable.”

The Russian rouble firmed past 55 against the

dollar to a more than two-week high. This week, the central bank

is likely to trim the key rate by 50 basis points to 9%.

Key Latin American stock indexes and currencies at 1450 GMT:

Stock indexes Latest Daily % change

MSCI Emerging Markets 980.13 -0.04

MSCI LatAm 1983.04 0.38

Brazil Bovespa 97700.43 0.81

Mexico IPC 47129.09 0.44

Chile IPSA 5130.70 0.96

Argentina MerVal 106697.10 1.191

Colombia COLCAP 1294.40 0.99

Currencies Latest Daily % change

Brazil real 5.3853 0.74

Mexico peso 20.3946 0.31

Chile peso 933.4 1.02

Colombia peso 4287.6 0.20

Peru sol 3.8801 0.29

Argentina peso 129.1100 -0.15

(interbank)

Argentina peso 289 0.69

(parallel)

(Reporting by Anisha Sircar in Bengaluru

Editing by Alistair Bell)