In the News

EMERGING MARKETS-EM currencies muted as dollar rises, Colombia’s peso falls again

NEW YORK, FEB 16 (Reuters) - Emerging market currencies were largely unchanged against a strong dollar on Thursday after hot U.S. inflation data stoked worries about interest rate hikes, while a fall in the Colombian peso limited gains in the Latin American currencies index.

  • Chilean government cuts estimate for 2023 GDP
  • Brazil’s economic activity rises 2.9% in 2022
  • Latam FX up 0.5%, stocks jump 1.2%

U.S. producer prices rose more than expected in January while weekly jobless claims fell, underscoring strength in the U.S. economy that could allow the Federal Reserve to tighten monetary policy further to cool demand.

The MSCI’s index for emerging market currencies was flat by 1935 GMT, while the dollar index was up 0.1% after paring some gains from earlier in the session.

“What is happening is indeed indicative of a U.S. economy that is stronger than anyone anticipated, but that may not necessarily translate into a strong buck long-term,” said Juan Perez, director of trading at Monex USA. “The main (reason) is that the U.S. economy showing that it is solid is not a surprise, much less that the Fed is hawkish going forward. They have told us so in every which way.”

Latin American currencies cut early losses to rise 0.5%. Colombia’s peso dropped 0.6%, adding to sharp losses in the previous session, with investors wary of the social and economic reforms put forward by leftist President Gustavo Petro’s government.

“The Colombian peso is a currency that is prone to suffer whenever financial conditions tighten, whenever yields go back up, and whenever risk sentiment wobbles, which is what we have had in the past few days,” said Alejandro Cuadrado, global head of FX strategy at BBVA.

The Brazilian real was flat against the dollar. The South American country’s economic activity increased by 2.9% in 2022, according to a central bank index released on Thursday, boosted by the services sector.

The performance defied earlier predictions of mild growth. Despite the recovery, the outlook for Brazil’s economy for 2023 remains more challenging, Elizabeth Johnson, head of TS Lombard’s Brazil research team, and Wilson Ferrarezi, an economist at the firm covering Brazil, wrote in a note. Mexico’s peso rose 0.5%.

The Bank of Mexico’s monetary tightening cycle is nearing its end and could see nominal interest rates top out between 11.25% and 11.75%, at which point rates would be kept steady to allow them to take effect, Jonathan Heath, the central bank’s deputy governor, said in an interview with Reuters. The Peruvian sol gained 0.1%. Data on Wednesday showed the Peruvian economy slowed for the second month in a row in December. Chile’s peso was muted against the greenback.

The Andean country’s government on Thursday pared back its forecast for the country’s gross domestic product (GDP) in 2023. Latin American stocks erased early losses and rose 1.2%, led by a 1.5% gain in Argentina’s MerVal index. Argentina’s central bank maintained its benchmark interest rate steady at 75% on Thursday.


Reporting by Shubham Batra, Bansari Mayur Kamdar, and Amruta Khandekar in Bengaluru; Editing by Shounak Dasgupta and Paul Simao
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