Thursday, October 28

Peru’s sol leads Latam FX higher as dollar dips; Chile c.bank in focus


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Most Latin American currencies rallied on

Wednesday as the dollar tracked US Treasury yields lower, with

Peru’s sol rising almost 2%, while Chile’s peso was up nearly 1%

ahead of a widely anticipated interest rate hike by the central

bank.

Peru’s sol surged to 11-week highs, gaining for a

fifth straight session after a seemingly moderate shift in

President Pedro Castillo last week cheered

investors.

After raising the rate to 1.5% in August, Chile’s central

bank is broadly expected to hike rates by at least 75 basis

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points to 2.25%. Some analysts have flagged the possibility of a

150 bps hike.

The peso moved further away from 1-1/2-year lows with

investors watching for comments on how the central bank planned

to respond to a recent spike in inflation.

“The adverse inflation result in September, the likely

deterioration of inflation expectations, and the still-strong

economic performance, will probably lead the bank to accelerate

the removal of monetary stimulus,” Credit Suisse analysts wrote

in a note. They expect the bank to hike by 100 bps.

On the political front, Chilean opposition lawmakers

launched impeachment proceedings against right-leaning President

Sebastian Pinera on Wednesday over revelations made in the

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Pandora Papers. This comes ahead of presidential elections in

November.

Most other Latam currencies rallied as falling US Treasury

yields saw the dollar give up gains made after a solid rise in

US inflation spurred bets of faster tightening by the Federal

Reserve. Minutes from central bank’s last meeting showed they

could start tapering in

mid-November.

A director at Brazil’s central bank said the risk of

out-of-control inflation in the United States would create a

much more challenging outlook for emerging markets.

Concerns over rising inflation have hurt emerging market

assets in recent months, with a spike in oil prices adding more

pressure on several import-reliant economies.

Brazil’s real reversed session losses to trade 0.5%

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higher, and stocks in Sao Paulo rose 1.3%. Economy

Minister Paulo Guedes said the government remained committed to

pushing through tax and public administration reforms, and that

medium-term fiscal sustainability remains critical.

Chile’s main equity index hit 11-month lows,

falling as much as 3%, as retailer Cencosud sank

18% despite announcing a dividend.

In Colombia, the peso fell from over three-month

peaks as oil prices slipped after steadying earlier in the day.

Key Latin American stock indexes and currencies:

Stock indexes Latest Daily%

change

MSCI Emerging Markets 1262.67 0.72

MSCI LatAm 2245.62 1.28

Brazil Bovespa 113676.89 1.33

Mexico IPC 51755.96 -0.15

Chile IPSA 4006.91 -2.34

Argentina MerVal 78286.87 0.461

Colombia COLCAP 1393.55 0.51

Currencies Latest Daily%

change

Brazil real 5.5077 0.52

Mexico peso 20.5871 0.91

Chile peso 815.6 0.72

Colombia peso 3741.4 -0.60

Peru sol 3.9653 1.53

Argentina peso 99.1200 -0.02

(interbank)

(Reporting by Ambar Warrick; Editing by Andrea Ricci and

Marguerita Choy)

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