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EMERGING MARKETS-Latam FX slump as hot U.S. inflation sends dollar soaring

EMERGING MARKETS-Latam FX slump as hot U.S. inflation sends dollar soaring

Reuters · 09/13/2022 15:22
EMERGING MARKETS-Latam FX slump as hot U.S. inflation sends dollar soaring

Brazil July services activity up 1.1%, beating expectations

Colombia government seeks further 2023 budget increase

Chile launches plan to address weakened economy

Argentina inflation seen easing back from July peak

Updates prices

By Anisha Sircar and Amruta Khandekar

- 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.

Giving the Fed ammunition to deliver a third 75 basis points hike of the year, data showed the U.S. consumer price index gained 0.1% last month after being unchanged in July. Economists polled by Reuters had forecast a dip of 0.1%.

As the dollar jumped 1.4%, currencies of Brazil BRBY, Colombia COP= and Mexico MXN= all slumped more than 1% each, while tumbling copper prices saw top producer Chile's peso CLP= drop 2.3% to hit three-week lows. MET/L

"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.

Emerging market currencies shave fallen over 6% this year as the dollar surged 15% on bets of higher-for-longer interest rates in a post pandemic world struggling with surging inflation amid a war.

Investors looked past upbeat data that showed services activity in Brazil rose 1.1% in July from June, above the median 0.5% increase forecast in a Reuters poll.

In Chile, eyes were also on a workers dispute over safety at Chile's large Escondida mine. Union workers approved a partial strike last week and threatened a complete work stoppage, but agreed to postpone action pending talks with the National Labor Directorate and mining regulator Sernageomin.

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 finance minister revised downward the economic growth forecast for year to 1.8% from 2.2% previously, as the country struggles to recover.

Meanwhile, the government wants to expand its budget for 2023 by 14.3 trillion pesos ($3.28 billion), a finance ministry spokesperson said.

Elsewhere, Argentina's inflation rate, heading toward 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 1905 GMT:

Stock indexes

Latest

Daily % change

MSCI Emerging Markets .MSCIEF

975.84

-0.33

MSCI LatAm .MILA00000PUS

2172.38

-3.07

Brazil Bovespa .BVSP

110908.97

-2.2

Mexico IPC .MXX

47125.76

-1.54

Chile IPSA .SPIPSA

5580.41

-0.29

Argentina MerVal .MERV

143808.27

-0.626

Colombia COLCAP .COLCAP

1233.23

-0.19




Currencies

Latest

Daily % change

Brazil real BRBY

5.1885

-1.79

Mexico peso MXN=D2

20.0637

-1.21

Chile peso CLP=CL

916

-1.97

Colombia peso COP=

4405.45

-1.16

Peru sol PEN=PE

3.875

-0.87

Argentina peso (interbank) ARS=RASL

142.5700

-0.20


(Reporting by Anisha Sircar and Amruta Khandekar in Bengaluru
Editing by Marguerita Choy and Jonathan Oatis)

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