In the News

Latam currencies drop, fiscal concerns hurt Brazilian real

June 12 (Reuters) -Latin American currencies reversed their early course and dropped against the dollar on Wednesday, with Brazil's real falling 1% on fiscal concerns, while investors awaited the Fed's policy decision after softer-than-expected U.S. inflation data.

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  • Fiscal deficit to shrink with higher revenues, lower rates- Brazil’s Lula
  • Brazil services activity rises more than expected in April
  • Argentina loses appeal to overturn $1.7 bln bill in UK securities case

Brazil’s real BRL= fell 1% and the benchmark stock index .BVSP dropped 1.3%, with analysts noting disagreements on the country’s sources of revenue.

President Luiz Inacio Lula da Silva said Brazil’s fiscal deficit reduction will be achieved through increased revenues and lower borrowing costs, without affecting public investments.

Citi analysts highlighted that the Senate’s President on Tuesday rejected the section of a provisional measure that limited tax credits, which could raise tax collection by 29 billion real this year.

“BRL breached a resistance level of 5.29-per-dollar and looks like it could head to 5.50,” said Juan Perez, director of trading at Monex.

“Brazil is facing finance/budget problems with disagreement causing friction and exacerbating the negative image that Brazil won’t be able to meet fiscal targets or maintain a stable situation.”

Most Latam currencies traded higher in early trade as the dollar was set for its steepest one-day fall this year. In a relief for Fed policymakers, data showed U.S. consumer prices were unexpectedly unchanged in May that saw traders ramp up their bets of a September rate cut, putting pressure on the U.S currency.

Focus now moves to the Federal Reserve’s monetary policy decision at 2 p.m. (1800 GMT). The Fed is widely expected to hold rates steady, but markets will parse its statement and updated forecasts for any clues on when first rate cuts might come.

The MSCI index or Latam currencies .MILA00000CUS dropped 1.3% to its lowest level since November, also dragged by a 1.8% fall in the Mexican peso MXN=D2 to 18.91-per-dollar.

Mexican markets have endured a period of volatility due to concerns over proposed constitutional reforms that the ruling party wants to implement after its thumping victory in national elections.

“The headlines are motivating investors to reconsider their long-standing justifications for the MXN’s unstoppable appreciation over the past three years,” analysts at Credit Agricole wrote. “We believe there is further downside in the currency.”

The Colombian peso COP= slumped 0.8% to its lowest since early December.

Meanwhile, Argentina lost an appeal in a London court to reverse a ruling which had left it facing a 1.56-billion-euro ($1.67 billion) bill over GDP-linked securities, a blow to the Latam economy that is facing an annual inflation of nearly 300%.

Bucking the trend, the currency of the world’s top copper producer, the Chilean peso CLP=CL rose 1%, boosted by strength in the metal’s prices.

The index for Latam stocks .MILA00000PUS dropped 2.3%, touching its lowest level since October.


Reporting by Ankika Biswas Editing by Tomasz Janowski

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