EMERGING MARKETS-Latam currencies gain on U.S. stimulus hopes

Wed Jul 18, 2012 1:03pm EDT

By Walter Brandimarte
    RIO DE JANEIRO, July 18 (Reuters) - Most Latin American
currencies gained on Wednesday as investors increased bets on
additional monetary stimulus by the U.S. Federal Reserve, a move
that often boosts dollar flows into emerging economies.
    The Brazilian real  was little changed from
Tuesday's close, however, as investors awaited the release on
Thursday of minutes of the central bank's latest monetary policy
meeting for more clarity on interest-rate strategy this year.
    The Mexican peso and the Chilean peso gained
0.3 percent and 0.5 percent, respectively, as key U.S. stock
indexes firmed, with investors hoping the Fed would eventually
deploy a third round of its bond-buying program to lower
financing costs and support the economy.
    Expectations of additional stimulus grew as leading U.S.
corporations such as Bank of America and Honeywell
 forecast a weakening economy will force them to further
cut costs in coming quarters.  
    The dimming U.S. economic outlook brought a different light
to the words of Fed Chairman Ben Bernanke, who repeated in
congressional testimony on Tuesday and Wednesday that the bank
could take additional action if it concludes the economy is not
making sufficient progress on job creation. 
    "Bernanke offered a repeat statement as to the Fed's
willingness to act if faced with a greater economic slowdown,
but refrained specifically from offering any additional signs of
quantitative easing," said Enrique Alvarez, head of strategy of
IDEAglobal in New York.
    "After mulling the lack of any new signs in this sense, the
markets decided that Bernanke had in fact offered enough
evidence of more Fed action to come."
    
    REAL STUCK IN NARROW RANGE
    The Brazilian real edged up 0.2 percent to 2.0176 per U.S.
dollar, however, as investors had little incentive to take the
currency out of the narrow range it has traded in for the past
two weeks under the threat of central bank intervention.
    "The currency market is stuck within this range of 2.00-2.10
and investors have no reason to trade here, as you can't make
any money like that," said Jankiel Santos, chief economist at
BES Investimento in Sao Paulo.
    In the past few weeks, the Brazilian central bank has
intervened heavily whenever the real weakens to near 2.1 per
dollar. On the other hand, it has also said that a currency
stronger than 2 per greenback would hurt exporters. 
    Uncertainty on whether the Brazilian central bank would
resort to even lower interest rates and a weaker currency to
support the economy this year has also kept investors cautious.
    Brazil last week cut its base Selic rate to an all-time low
of 8 percent, and minutes of the bank's latest meeting are
expected to shed light on how much lower rates may go this year.
        
    Latin American FX prices from Reuters at 1650 GMT:
    
 Currencies                            daily %     YTD %
                                        change    change
                              Latest            
 Brazil real                  2.0184      0.15     -7.43
                                                
 Mexico peso                 13.1099      0.34      6.56
                                                
 Argentina peso*              6.6500     -0.75    -28.87
                                                
 Chile peso                 487.2000      0.53      6.59
                                                
 Colombia peso            1,776.2000      0.24      9.13
                                                
 Peru sol                     2.6190      0.04      2.98
                                                
 * Argentine peso's rate between                        
 brokerages
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