Calmer Treasury yields support Latam FX; Real drops on inflation worries

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Most Latin American currencies rose on

Wednesday as a recent rally in US Treasury yields paused,

while Brazil’s real slipped after January inflation data showed

its steepest rise in six years.

The real, fell 0.4%, the most among its Latin

American peers after data showed consumer price inflation

decelerated in January from the previous month, as expected, but

still showed the strongest pace for the period in six years.

Inflation pressures have soared in Latin America’s largest

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economy, leading its central bank to hike rates multiple times

over the past year in one of the most aggressive policy

tightening regimes in emerging markets.

“The weak key fiscal data and the weak economy combined with

higher inflation do not make the currency seem particularly

attractive, despite high interest rates,” said You-Na

Park-Heger, an analyst at Commerzbank.

However, Heger added that high inflation is likely to fuel

that the Brazilian central bank might not have expectations

reached the end of its rate hike cycle any time soon, which

might support BRL further.

Brazil’s central bank still has interest rate adjustments to

be made and a “lot of work ahead” as inflation remains in double

digits, Monetary Policy Director Bruno Serra said.

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Meanwhile, retail sales in Brazil fell less than expected in

December, official figures showed, leading the year’s

performance to a growth of 1.4%, its fifth positive result in a

row.

Most other commodity-focused currencies including, the

Mexican, Colombian and Chilean pesos gained

on support from a weaker dollar and calmer Treasury yields.

The currency of the world’s top copper producer, Chile,

gained the most among its peers, up 1% in its best day so far

this month as copper prices edged higher.

The dollar index weakened 0.2%, making

greenback-denominated metals cheaper for those holding other

currencies, while investors awaited US inflation data this

week for clues on the pace of Federal Reserve policy tightening.

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The Peruvian sol fell 0.4%. President Pedro Castillo

swore in his fourth cabinet in just six months in office on

Tuesday in a bid to end his administration’s recurring crises.

Castillo, a former schoolteacher and member of a

Marxist-Leninist party, handed the premiership to Anibal Torres,

the justice minister in the previous cabinet.

Among other data, Mexican consumer prices rose 7.07% in the

year through January, the national statistics agency said.

Key Latin American stock indexes and currencies:

Latest Daily %

change

MSCI Emerging Markets 1238.43 1.53

MSCI LatAm 2314.88 0.12

Brazil Bovespa 111925.87 -0.27

Mexico IPC 0.00 0

Chile IPSA 4613.61 0.68

Argentina MerVal 88936.75 0.893

Colombia COLCAP 1521.35 -0.16

Currencies Latest Daily %

change

Brazil real 5.2797 -0.38

Mexico peso 20.5397 0.28

Chile peso 819.5 0.87

Colombia peso 3932.44 0.23

Peru sol 3.8369 -0.36

Argentina peso 105.9000 -0.08

(interbank)

(Reporting by Shashank Nayar in Bengaluru; Editing by Andrea

Ricci)