May 18, 2018 / 2:26 PM / 7 months ago

EMERGING MARKETS-Brazil real slumps despite intervention amid emerging market selloff

    By Bruno Federowski
    BRASILIA, May 18 (Reuters) - The Brazilian real on Friday
once again underperformed its Latin American peers as a global
emerging market selloff drove many investors to unwind bets on a
stronger currency despite increased central bank intervention.
    The real weakened as much as 2 percent to 3.78 to the
dollar, the weakest since March 2016, before paring back some of
those gains to trade 1 percent lower.
    It fell for a sixth straight day, capping an 11.3 percent
decline since the beginning of the year that made it the
second-worst performing currency in Latin America, behind only
the Argentine peso.
    Bets that a wider U.S. fiscal deficit and accelerating
inflation could drive the Federal Reserve to raise interest
rates more than expected, have bumped up U.S. bond yields,
luring capital away from higher-yielding, emerging-market
assets.
    The selloff has extended for weeks, surprising many who were
certain that the rout would fade quickly. A Reuters poll of
foreign exchange strategists earlier this month suggested Latin
American currencies would likely recoup much of their losses in
coming months, though many warned of vulnerabilities in
Argentina and Brazil.
    The currency weakness came even after Brazil's central bank
increased market intervention and unexpectedly refrained from
cutting interest rates this week.
    "The central bank did the right thing by signaling concern
with the foreign exchange weakness, but there's only so much you
can do when you're dealing with a global repricing of the
dollar," said a Rio de Janeiro-based portfolio manager.
    "To some degree, you're also going to see increased daily
volatility as traders test the central bank's willingness to
intervene even more."
    Brazil's central bank has increased daily sales of currency
swaps, which function like sales of dollars for future delivery.
It holds $25 billion worth of currency swaps in its books.
    The move highlights how emerging-market central banks have
struggled to support their currencies. The Argentine peso
weakened around 1 percent on Thursday even as the country's
central bank offered to sell additional dollars. 
    
    Key Latin American stock indexes and currencies at 1350 GMT:
 Stock indexes                                daily %    YTD %
                                               change   change
                                   Latest              
 MSCI Emerging Markets               1138.30     -0.5    -1.24
 MSCI LatAm                          2708.12    -1.65    -2.64
 Brazil Bovespa                     82862.26    -0.91     8.46
 Mexico IPC                         45729.07    -0.13    -7.35
 Chile IPSA                          5697.04     0.13     2.38
 Chile IGPA                         28801.90     0.14     2.93
 Argentina MerVal                   31795.12    -0.03     5.75
 Colombia IGBC                      12264.38     0.62     7.86
 Venezuela IBC                      22527.86     0.11  1683.48
                                                              
 Currencies                                   daily %    YTD %
                                               change   change
                                      Latest           
 Brazil real                          3.7364    -0.98   -11.32
 Mexico peso                         19.9000    -0.88    -1.01
 Chile peso                            637.8    -0.91    -3.63
 Colombia peso                       2931.65    -0.95     1.72
 Peru sol                               3.28    -0.21    -1.31
 Argentina peso (interbank)          24.5500    -0.86   -24.24
                                                       
 Argentina peso (parallel)              25.1    -0.40   -23.39
                                                       
 

 (Reporting by Bruno Federowski
Editing by Susan Thomas)
  
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