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EMERGING MARKETS-Latam FX near nine-year high as weak U.S. data weighs on dollar

June 5 (Reuters) - Latin American currencies climbed on Monday as the dollar sputtered on weak U.S. economic data, while Colombia's peso jumped after the country's lower house froze debates on government-backed social reforms.

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  • Latam FX is up 0.5%, and stocks gain 0.6%
  • Brazil’s GDP to grow 1.68% in 2023 – economists
  • Mexico’s ruling party captures the opposition’s bastion
  • Colombia’s lower house freezes reform debates

MSCI’s Latam currencies index hit its peak since September 2014, last up 0.5% at 1903 GMT.

The dollar retreated after data showed U.S. services sector activity barely grew in May, and investors scaled back expectations of an interest rate hike from the Federal Reserve this month.

The Colombian peso, the currency of a major oil-exporting nation, jumped 1.6% to hit its highest level since August 2022. Colombia’s lower house said on Monday it would freeze debates on government-backed social reforms, as former high-ranking officials in President Gustavo Petro’s administration were called to give evidence over alleged campaign financing irregularities.

The freeze makes it unlikely the social reform bills proposed by Petro to Congress will win approval before the end of the legislative session on June 20.

“COP is going to absolutely be on the rise as Petro now faces scrutiny over his campaign’s finances. Political instability is never a good thing, but if Petro can change the country less, it is a plus for COP,” said Juan Perez, director of trading at Monex USA.

Colombia’s peso, as well as the currency of Mexico, another leading oil exporter, also gained 0.6% on a jump in crude prices. Mexico’s ruling party comfortably captured a major historic stronghold of the opposition in an election on Sunday, consolidating President Andres Manuel Lopez Obrador’s hold on power ahead of the battle to succeed him next year. “The market looks at Mexican politics as being quite stable now. The main uncertainty is not about whether the current government remains in power, but about who will really be the person to replace,” said Carlos de Sousa, EM debt portfolio manager at Vontobel Asset Management AG. The Brazilian real strengthened 0.7% against the U.S. dollar and was at a nearly three-week high, as economists bumped up their forecast for 2023 gross domestic product growth in the country to 1.68% in 2023 from 1.26% in the previous week. Optimism around strong growth in Brazil has helped the real steady in recent days after declines led by mounting bets of rate cuts as President Luiz Inacio Lula da Silva and the country’s central bank sparred over inflation targets. Changes to the Brazilian inflation targeting system should not be linked to how monetary policy is carried out, Diogo Guillen, the central bank’s director of economic policy, said on Monday.

Latin American stocks gained 0.6% on Monday, with Argentina’s MerVal index leading the advance.


Reporting by Siddarth S and Amruta Khandekar in Bengaluru, Editing by Nick Zieminski and Richard Chang
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