Latam FX give back gains as dollar shoots higher after Fed

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Latin American currencies fell by

afternoon trading on Wednesday as the dollar shot up after the

US Federal Reserve signaled it would raise interest rates in

March, while currencies of Russia and Ukraine buckled under

geopolitical pressure.

The dollar rose after the Fed reaffirmed plans to end

its bond purchases in March as well, before launching what was

characterized as a significant reduction in its asset holdings.

“Market volatility has escalated due to fears about the

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change in Fed policy,” said John Lynch, chief investment officer

for Comerica Wealth Management.

“We believe the Fed has been as explicit as possible, yet

uncertainty about the extent of liquidity has the markets on

edge.”

Brazil’s real rose fell 0.2% against a stronger

dollar as data showing inflation rose more than expected in the

month to mid-January. Inflation decelerated over the previous

month, but annual inflation stands at 10.2%, much higher than

the central bank’s target of 3.5%.

This puts pressure on the central bank to continue raising

the key Selic interest rate again after last year’s aggressive

725 basis points worth of hikes.

“The central bank is on course to hike the Selic rate by

another 150bps to 10.75% next Wednesday,” said William Jackson,

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chief EM economist at Capital Economics.

“That said, with inflation now past its peak and likely to

fall in the coming months, policymakers may signal that the pace

of tightening will slow at the subsequent few meetings.”

The Organisation for Economic Co-operation and Development

(OECD) said on Tuesday it had begun talks to allow Brazil,

Argentina and Peru among others to join the club of rich

nations. Brazil hopes that joining the OECD would boost investor

confidence as it battles high inflation and unemployment.

A source in Brazil said the average time to enter the

Paris-based body at this point was three to five years.

Mexico’s peso shed 0.6%, while Chile fell

0.4%. Higher oil prices boosted Colombia’s peso.

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Stocks in the region rose, with Brazil’s Bovespa index

hitting over three-month highs. Gains were led by a 9%

jump in shares of pet retailer Petz, which struck a

deal to buy dog ​​potty pads manufacturer Petix in a 70 million

reais ($12.85 million) stock and cash deal.

Currencies in emerging European economies fell, with those

of Russia, Ukraine and Belarus losing

between 0.1% and 1.1% against the dollar. Hungry’s forint

failed to sustain gains from Tuesday’s

larger-than-expected rate hike.

Russia warned on Wednesday that imposing sanctions on

President Vladimir Putin personally would not hurt him but would

be “politically destructive,” after US President Joe Biden

said he would consider such a move if Russia invaded Ukraine.

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Key Latin American stock indexes and currencies at 2006 GMT:

Stock indexes Latest Daily %

change

MSCI Emerging Markets 1210.26 -0.02

MSCI LatAm 2238.05 0.89

Brazil Bovespa 112072.14 1.7

Mexico IPC 51245.48 0.28

Chile IPSA 4552.33 0.51

Argentina MerVal 86131.19 1.116

Colombia COLCAP 1525.74 -0.11

Currencies Latest Daily %

change

Brazil real 5.4510 -0.24

Mexico peso 20.7209 -0.58

Chile peso 800.5 0.00

Colombia peso 3924.22 1.00

Peru sol 3.8266 0.21

Argentina peso (interbank) 104.7000 -0.08

Argentina peso (parallel) 218 ​​0.69

(Reporting by Susan Mathew and Shreyashi Sanyal in Bengaluru;

Editing by Shinjini Ganguli and Jonathan Oatis)