NEW YORK, Sept 26 (Reuters) - Latin American currencies fell to their lowest level in more than seven weeks on Monday, as traders rushed to the safe-haven U.S. dollar, while stocks in the resource-heavy region slid on weak commodity prices and jitters about an economic slowdown.
UK’s sterling crashed to a record low earlier in the day on mounting concern about the new government’s economic plan, briefly lifting safe-haven U.S. dollar =USD to its highest peak since May 2002 and weighing on global markets.
As the greenback stayed close to new two-decade highs, MSCI’s index of Latam currencies. MILA00000CUS fell 1.4%, with the Brazilian real BRBY, BRL= down 1.4% against a robust greenback.
“It is clear now that in comparison to all regions, the U.S.’s ability to be away from everyone else by big bodies of water helps keep economic stability and the dollar King,” said Juan Perez, director of trading at Monex USA in Washington.
“Commodities and all other assets are not going to be climbing up unless we get something better out of China especially when its currency the Yuan has been a clear gauge lately for the downfall of peers to the dollar.”
So far this year, Brazil’s real has advanced 4.8% despite volatility as Latin America’s largest economy goes to elections.
“Clean wins in elections moving forward will be good for the currency of countries holding those democratic exercises without issue. That’ll be key to BRL,” added Perez.
U.S. diplomats have assured Brazil’s leading presidential candidate, leftist former President Luiz Inacio Lula da Silva, that they will swiftly recognize the winner of next month’s election, two sources told Reuters.
Latin American currencies have fared better than many emerging market peers so far this year as regional central banks started their hiking cycles early and went big, staying ahead of the Fed.
Chile is expected to raise its benchmark interest rate in October to 11.25% from the current 10.75%, according to a central bank poll of traders, as the Andean country tries to rein in high inflation.
Concerns about weaker demand and a firm dollar hit crude and metal prices, dragging currencies of oil producers Mexico MXN= and Colombia COP= down 0.3% and 0.6% respectively, while top copper exporter Chile’s peso CLP= fell 1.1%. O/RMET/L
MSCI’s index of Latam stocks. MILA00000PUS fell 1.9%.
Brazil’s Bovespa index. BVSP declined 0.6% as financials and commodity-linked stocks such as Vale VALE3.SA and Petrobras PETR4.SA weighed on the index.
Brazil’s central bank said it would set a 0.7% limit for interchange fees for prepaid cards, which are offered by fintechs in free digital accounts, in a setback for the booming sector.
Meanwhile, data showed Mexico’s economy grew 0.4 percent in July from June and expanded 1.3 percent from July of 2021.
Elsewhere, the lira TRY= fell 0.2%, hitting a record low against the dollar following an unexpected rate cut last week.
The risk of further Western sanctions sent Russian stocks. IMOEX plunging to their lowest since Feb. 24, the day Moscow sent troops into Ukraine, as voting continued in referendums that could see four Ukrainian regions annexed by Russia.
