In the News

EMERGING MARKETS – Latam FX slips after bruising selloff, Peru’s sol rises

NEW YORK, June 14 (Reuters) - Latin American currencies slipped on Tuesday after starting the week lower, hit by concerns of rising inflation and slowing global growth, while Peru's sol rose ahead of the restart of the Las Bambas copper mine.

SUMMARY

  • Brazil’s Guedes says govt tax cuts allow prices not to be adjusted immediately
  • Truce on Peru’s Las Bambas mine restart starts June 15
  • Dollar up as traders await Fed rate move

Emerging market assets along with other riskier assets were trading in a narrow range for most part of the day as investors now price in a larger-than-expected three-quarter-percentage point interest rate increase by the U.S. Federal Reserve on Wednesday.

In the face of surging global inflationary pressures and fresh COVID restrictions in China, investors have become growingly risk averse. Latam currencies eased 0.2% on Tuesday, while stocks fell 0.6%.

“If the Fed says, we do need to raise interest rates but we’re not going to do it too aggressively, that’s going to improve every other currency that at the moment is losing to the dollar,” said Juan Perez, director of trading at Monex.

Brazil’s real shed 0.5%, staying near one-month lows. Services activity in Latin America’s largest economy rose 0.2% in April from March, statistics agency IBGE said, below the 0.4% growth expected in a Reuters poll of economists.

Brazil’s Economy Minister Paulo Guedes said tax reductions supported by the government allow prices not to be adjusted immediately, denying he had asked prices to be frozen while the country faces persistent inflation and President Jair Bolsonaro seeks re-election.

Analysts at Credit Suisse expect still high inflation in Brazil to spread across item categories for the remainder of 2022, namely to food and fuel prices. Worries about rising food inflation and shortages have also affected sentiment in the developing world space.

Mexico’s peso lost 0.8%, while the Chilean peso shed 0.5%. Chile-based LATAM Airlines Group SA, the largest air transport group in Latin America, tumbled 12.3% after it asked a bankruptcy judge to approve $2.75 billion in new loans to fund the company’s exit from Chapter 11.

The Peruvian sol, however, outperformed its Latin American peers, rising to 3.75 to the dollar as it rebounded from one-month lows hit in the previous session. Investors were awaiting the start of a 30-day truce on Wednesday after a group of indigenous Peruvian communities agreed last week to temporarily lift a protest against MMG Ltd’s

Las Bambas copper mine that forced the company to halt operations for more than 50 days, the longest in the mine’s history. A Reuters poll of analysts showed Argentina’s monthly inflation rate is expected to clock in at 5.2% in May, still painfully high but slower than the two previous months. The peso fell 0.2%.

Reporting By by Shreyashi Sanyal and Bansari Mayur Kamdar in Bengaluru; Editing by Alistair Bell
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