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EMERGING MARKETS-Latam FX hits near one-month high as dollar skids after Fed's rate hike

EMERGING MARKETS-Latam FX hits near one-month high as dollar skids after Fed's rate hike

Reuters · 07/27/2022 16:58
EMERGING MARKETS-Latam FX hits one-month high as dollar skids after Fed's rate hike

Dollar falls after Fed raises rates by 75 bps

Brazil's Klabin, Carrefour rise on upbeat Q2

Colombia rate decision due Friday

Updates prices

By Anisha Sircar and Devik Jain

- Latin American currencies hit a -one month high on Wednesday as the dollar fell after a widely-expected interest rate hike by the U.S. Federal Reserve, while stocks gained as a slew of earnings from the region's two largest economies lent support.

The U.S. central bank raised its benchmark overnight interest rate by 75 basis points in an effort to tame soaring inflation, with Fed Chair Jerome Powell saying other "unusually large" increase in rates may be appropriate at the September meeting, but the decision will be determined by the incoming economic data between and then.

The dollar =USD slid 0.7% to 106.35 following the decision and Powell's conference. Bets of a super-sized U.S. rate hike of 100 basis points (bps) had pushed the dollar =USD to a 20-year-high of 109.29 earlier this month.

"It was a very hawkish decision, but the fact that they hiked by 75 and 100 basis points was seen as kind of some relief for emerging markets and somewhat lessens the pressure for more aggressive hikes in emerging markets that had been mounting in the last two weeks," TS Lombard economist Wilson Ferrarezi said.

While emerging markets started their monetary policy tightening cycles well before developed peers, inflation has consistently exceeded expectations in those countries.

Adding to that rising fears of a global recession and domestic political uncertainty has rattled risk sentiment recently, with analysts fearing a hit to Latin American assets after a strong rally earlier this year on boost from soaring commodity prices.

Brazil's real BRL= and Chile's peso CLP= jumped 1.9% and 1.1%, respectively, also helped by higher prices in key export commodities iron ore and copper. IRNMET/L

Mexico's peso MXN= erased losses to trade 0.4% higher, after Fed's Powell said he did believe the U.S. economy is currently in a recession but it is softening.

Colombia's peso COP= rose 0.5% ahead of a Bank of Colombia policy rate meeting on Friday.

"Our base case is that Colombia's central bank hikes 100 bps... if inflation dynamics improve in the August CPI print, then it could go with 50 bps in September, and hint that it is approaching the terminal rate," said Alberto J. Rojas, vice president of Latam economics at Credit Suisse.

"But if inflation continues surprising in upcoming prints, BanRep can keep the pace at 100 bps in order to anchor expectations."

Meanwhile, some upbeat quarterly earnings supported Latam stocks .MILA00000PUS, which firmed 1.4%.

Brazilian paper company Klabin SA KLBN11.SA rose 5.8% on reporting a 35% rise in profit.

Carrefour Brasil ATAAY leaped 6% after saying profit rose 1.3% from a year earlier.

Elsewhere in the region, Argentina hopes to raise $2.5 billion dollars with incentives for rural producers to sell their harvest and ease tensions in the domestic exchange market.



Key Latin American stock indexes and currencies at 2033 GMT:


Stock indexes

Latest

Daily % change

MSCI Emerging Markets .MSCIEF

989.89

0

MSCI LatAm .MILA00000PUS

2048.12

1.38

Brazil Bovespa .BVSP

101437.96

1.67

Mexico IPC .MXX

46842.92

0.36

Chile IPSA .SPIPSA

5251.39

0.99

Argentina MerVal .MERV

126361.98

5.268

Colombia COLCAP .COLCAP

1300.17

0.41




Currencies

Latest

Daily % change

Brazil real BRBY

5.2527

-0.09

Mexico peso MXN=D2

20.3838

0.30

Chile peso CLP=CL

918.5

0.63

Colombia peso COP=

4415.6

0.40

Peru sol PEN=PE

3.91

-0.04

Argentina peso (interbank) ARS=RASL

130.9000

-0.16

Argentina peso (parallel) ARSB=

321

0.62




(Reporting by Anisha Sircar in Bengaluru)

((Anisha.Sircar@thomsonreuters.com;))