EMERGING MARKETS-Latam currencies drop on Fed stimulus concern

Fri May 10, 2013 5:38pm EDT

* Fears of smaller Fed stimulus roil Latam markets for 2nd
day
    * Mexico's weak industrial output, central bank minutes
weigh on peso
    * Mexico peso drops 0.7 pct, Brazil real falls 0.4 pct

    By Walter Brandimarte
    RIO DE JANEIRO, May 10 (Reuters) - Latin American currencies
weakened for a second day on Friday as concern that the U.S.
Federal Reserve could scale back its stimulus program weighed on
risk assets, boosting investors' appetite for the dollar
instead.
    Mexico's peso led losses in the region after weak
industrial production data for March and central bank minutes
that highlighted risks to growth fueled expectations of further
interest rate cuts in Latin America's second-largest economy.
 
    The peso dropped 0.9 percent and returned to the level of 12
per dollar as some investors feared that lower interest rates
could reduce the appeal of Mexican assets to foreign investors.
Just two days ago, the Mexican currency had strengthened past
the 12-per-dollar mark for the first time in 21 months. 
    Brazil's real  weakened 0.4 percent to 2.0238,
nearing a level that, according to analysts, could trigger a
central bank intervention.
    Comments by Esther George, head of the Kansas City Fed, that
she hoped the central bank would be able to reduce the stimulus
fueled concerns about the future of the Federal Reserve's
bond-buying program. 
    "There were some comments from a Fed official and the market
saw the possibility of less stimulus," said Jose Carlos Amado, a
trader with Renascenca brokerage in Sao Paulo. "The market had
been very quiet and took that as an excuse to move prices."
    Despite such concerns, other analysts noted that Japan's
unprecedented monetary stimulus should continue to support the
appetite for emerging market assets for many months to come.
    "Even if the U.S. was to unwind its monetary stimulus, Japan
will still be a force to reckon with. Japan is doing a very
aggressive monetary stimulus and they could do more," said
Kathryn Rooney Vera, Latin America strategist with Miami-based
BullTick Capital Markets.
    She noted that despite the recent positive jobs data in the
United States, she does not believe the Fed is in a position to
cut off its monetary stimulus.
            
    Latin American FX prices at 2100 GMT:
    
 Currencies                         daily %    YTD %
                                     change   change
                            Latest           
 Brazil real                2.0238    -0.43     0.80
                                             
 Mexico peso               12.0840    -0.73     6.46
                                             
 Chile peso               473.7000    -0.36     1.06
                                             
 Colombia peso           1833.8500    -0.20    -3.70
                                             
 Peru sol                   2.6010    -0.04    -1.92
                                             
 Argentina peso             5.2275    -0.10    -6.03

 Argentina peso             9.9800     4.71   -32.06
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