July 26 (Reuters) - Currencies of most Latin American countries extended gains on Wednesday after a widely expected interest rate hike from the U.S. Federal Reserve, with the Brazilian real getting an added boost from a Fitch ratings upgrade.
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- Fed hikes rates by 25 bps as widely expected
- Fitch upgrades Brazil’s credit rating
- Israel Supreme Court to hear appeal in judicial crisis
- Latam FX is up 0.3%
MSCI’s index for Latin American currencies gained 0.3% against a softer dollar. The Federal Reserve raised interest rates by a quarter of a percentage point on Wednesday, with Chair Jerome Powell
saying there could be another increase in September “if the data warranted.”
Analysts said the central bank’s statement offered few surprises, and markets were still hoping this was the last hike in the Fed’s current tightening cycle.
“Powell will likely continue to defend the Fed’s line of thinking because the tightening bestowed on the economy has caused disinflation, a much-desired goal. Since things are good, they (the Fed) can be flexible and exercise a wait-and-see approach based on data,” said Juan Perez, director of trading at Monex USA.
Rate decisions out of Europe and Japan are also due this week. The Brazilian real gained 0.5% after Fitch upgraded its credit rating to “BB” from “BB-” on better-than-expected macroeconomic and fiscal performance, providing the government with a welcome endorsement. The upgrade follows an S&P outlook revision to positive and comes after a series of domestic and international crises, which led to the country losing all its investment-grade scores.
“The rating indicates a positive mark noting the macroeconomic as well as fiscal stability the nation has maintained in the first half of 2023,” said Perez.
Data showed Brazil’s June current account performance disappointed expectations, while foreign direct investments in the country fell significantly short of projections. Other Latam currencies, including those of Chile, Mexico, and Colombia, gained between 0.5% and 0.9%. Latam currencies have benefited from attractive yields this year given surging interest rates in the region, though evidence of slowing inflation has spurred speculation about rate cuts, particularly from Chile and Brazil in the coming days. Brazil’s Finance Minister Fernando Haddad said on Wednesday that he expects the basic interest rate to fall to “at least” 12% by this year’s end. Focus was also on Argentina, which is running out of time to secure the next tranche of a $44 billion loan with the International Monetary Fund, which it could use to repay the fund’s older debt due in the coming days. Elsewhere, Israel’s Supreme Court said it would hear an appeal against a new law that curbs some of its own powers, pitting it against Prime Minister Benjamin Netanyahu’s right-wing government, which is seeking an overhaul of the judicial system.
