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EMERGING MARKETS-Latam FX mixed against dollar after softer U.S. inflation data

Reuters · 11/15/2022 15:41
EMERGING MARKETS-Latam FX mixed against dollar after softer U.S. inflation data

Mexican peso hovers 2-1/2 year highs

U.S. producer prices rise less than expected; dollar slides

Argentina agrees $5 bln China currency swap extension

Updates prices

By Susan Mathew and Devik Jain


- Latin American currencies were mixed on Tuesday against the dollar after a smaller-than-expected rise in U.S. producer prices provided further evidence that inflation was cooling, lending weight to bets of a tempered Federal Reserve.

Mexico's peso MXN= was flat after hitting a more than 2-1/2 year high earlier in the session.

The Colombian peso COP= fell 0.9% even as data showed the economy grew 7% in the third quarter, beating expectations, driven by growth in the entertainment, information and communication sectors.

The peso hit a record low earlier this month on worries about President Gustavo Petro's economic policies to fund social projects and put the country's public finances in order.

Colombia's Congress had approved a tax reform bill that will raise an additional 20 trillion pesos ($4 billion) annually for the four years, in part through increased duties on oil and coal.

"We expect additional currency weakness going forward, as Colombia's wide current account deficit and large external financing make the country particularly vulnerable among emerging market peers in the context of tightening global financial conditions," Alejo Czerwonko, chief investment officer, emerging markets Americas, at UBS Global Wealth Management, wrote in a .

"Policy uncertainty looks set to remain high for the foreseeable future. At the same time, the recent sell-off in Colombian assets has brought the peso to deeply undervalued territory, which may be a buffer against extreme further weakness."

The dollar =USD was down 0.5% after data showed the U.S. producer prices index rose 8% in the 12 months through October, lower than an estimated 8.3% rise. This comes after data last week showed U.S. consumer prices cooled more than expected in October.

Hopes for a smaller 50 basis points hike from the Federal Reserve in December rose to almost 90% following the data.

Worries that the Fed, along with tightening by other major central banks to fight inflation, could tip economies into recession have sent investors fleeing to safer assets this year.

But recent gains have cut some of those losses, with MSCI's index of emerging market currencies .MIEM00000CUS, which was on track for its worst yearly drop on record, on course for its sharpest drop since 2015.

Emerging market stocks .MSCIEF jumped 2.2% to two-month highs as optimism from a meeting between the U.S. and Chinese Presidents assuaged fears of a further strain in ties.

Meanwhile, Argentina agreed to expand its currency swap deal with China by $5 billion, a move that would give it more firepower to defend the embattled local peso. The Argentine peso ARS=RASL, languishing in record low territory, slipped 0.2% on Tuesday.

Argentina's monthly inflation rate hit 6.3% last month, as expected.

Brazil markets were closed for a local holiday.

Key Latin American stock indexes and currencies at 2027 GMT:


MSCI Emerging Markets .MSCIEF

960.31

2.18

MSCI LatAm .MILA00000PUS

2242.26

-0.38

Brazil Bovespa .BVSP

113161.28

0.81

Mexico IPC .MXX

51401.25

-0.74

Chile IPSA .SPIPSA

5239.13

-1.2

Argentina MerVal .MERV

154745.96

1.35

Colombia COLCAP .COLCAP

1285.81

1.52




Currencies

Latest

Daily % change

Brazil real BRBY

5.3254

-0.45

Mexico peso MXN=D2

19.3510

-0.06

Chile peso CLP=CL

885.7

0.58

Colombia peso COP=

4843

-0.85

Peru sol PEN=PE

3.8113

0.96

Argentina peso (interbank) ARS=RASL

162.1200

-0.21

Argentina peso (parallel) ARSB=

298

-1.34


(Reporting by Susan Mathew, Devik Jain and Shreyashi Sanyal in Bengaluru; Editing by Bernadette Baum and Alex Richardson)

((susan.mathew@thomsonreuters.com;))