(Reuters) - Latin American currencies fell against a strong dollar on Thursday after gains the previous day on the Federal Reserve's unchanged 2024 policy outlook, while Turkey's surprise rate hike boosted its international sovereign bonds and the lira.
- Brazil cuts rates by 50 bps, may change course after May
- Mexico policy decision due By Ankika Biswas March 21
Chile’s peso, Peru’s sol and Colombia’s peso weakened between 0.3% and 0.9%, with the dollar index gaining 0.5% and recouping Wednesday’s losses after Fed Chair Jerome Powell said recent high inflation readings had not altered the central bank’s stance as it stayed on track for three interest rate cuts.
Juan Perez, director of trading at Monex USA, also pointed to the Swiss National Bank’s unexpected rate cut that likely puts pressure on most developed economies to start easing and also on emerging markets to further loosen their monetary policy.
Meanwhile, Turkey unexpectedly raised interest rates by 500 basis points to 50%, citing a deteriorating inflation outlook and pledged to tighten further if need be.
The lira firmed to 31.91 per dollar – its strongest level since March 7 – after the decision, while international dollar-denominated bonds extended their earlier gains, with the 2038 bond chalking up the biggest increases.
The broader Istanbul stock market climbed more than 2% and the main Turkish bank stocks index jumped nearly 6%.
“With local elections coming up, very few were expecting a rate rise. There has been a debate over how independent the central bank can be from politics so this move is going to reassure investors,” said Cagri Kutman, Turkish market specialist at KNG Securities.
Within Latam, Brazil cut its benchmark rate by 50 basis points at a sixth straight policy meeting on Wednesday, while flagging it may change the course of the current easing cycle after May.
The real fell 0.2%, in line with peers, to 4.98 per dollar.
“If USD/BRL rises further this year, it is likely to be on weakening terms of trade, political uncertainty, and concerns about the BCB’s (Brazilian central bank’s) eventual leadership … These risks are not trivial, and USD/BRL could get to 5.30 at year-end,” said Thierry Wizman, Global FX & Rates Strategist at Macquarie.
Mexico’s peso also fell 0.5% ahead of its policy decision later in the day, widely expected to deliver its first rate cut since mid-2021, although it may not start an aggressive easing cycle.
Colombia’s rate decision is due on Friday, with a Reuters poll showing analysts expect the central bank to slash rates by twice as much as in previous months.
