May 14, 2020 / 8:48 PM / 13 days ago

EMERGING MARKETS-Mexican peso leads gains among Latam FX

 (Adds comments, updates prices throughout)
    By Shreyashi Sanyal
    May 14 (Reuters) - The Mexican peso jumped on Thursday as an
interest rate cut from the country's central bank helped
reassure investors of financial stability in Latin America's
second-biggest economy.    
    The Bank of Mexico or Banxico, as it is known, cut its
benchmark interest rate to the lowest in 3-1/2 years and hinted
more cuts could be on the horizon.
    The peso gained 1.8% against the dollar following the
expected rate cut, with analysts seeing the move as a positive
for the economy. 
    "It also included an intriguing reference to the 'room for
maneuver' of monetary policy – seemingly hinting at a trade-off
between shoring up activity, and supporting the peso and
financial stability," said Edward Glossop, Latin America
economist at Capital Economics. 
    "There is further scope for Banxico to trim interest rates
without risking pressure on the peso and triggering capital
outflows. Risk appetite appears to have returned."     
    However, Banxico also warned the coronavirus pandemic's
effects will be felt more strongly in the second quarter. 
    Brazil's real erased early losses to trade flat.
    Data showed nearly 189,000 total COVID-19 cases in Brazil,
making it the sixth-worst-hit by the outbreak. Criticism against
President Jair Bolsonaro has been rising as he pushes against
social distancing protocols.
    The government on Wednesday cut Brazil's 2020 GDP forecast
to a contraction of 4.7% from 0%. 
    U.S.-China trade tensions also rose after U.S. President
Donald Trump on Thursday said he was very disappointed in China
over its failure to contain the virus outbreak, and that the
pandemic cast a pall over his trade deal with Beijing.

    The World Health Organization on Wednesday said the
coronavirus could become an endemic like HIV and may be here to
stay.
    "We don't expect an all-out trade war to resume. Yet a shift
in political rhetoric and other actions could reinforce the
shift in risk appetite," said Mark McCormick, global head of FX
strategy at TD Securities. 
    Falling copper prices pushed the Chilean peso off
10-week highs, after the country on Wednesday announced a
general quarantine for greater Santiago to control a sharp
resurgence of coronavirus cases in the capital.
    The Colombian peso was set for its biggest percentage
fall in two weeks. A Reuters poll showed the local economy may
have marked its last quarter of expansion in the first quarter
before it enters a recession. The data is due on
Friday. 
    Argentina's black market peso weakened to 136 per U.S.
dollar, traders said, widening its gap with the official foreign
exchange rate to more than 100% as the country negotiates a
restructuring of its sovereign bonds.     
    Key Latin American stock indexes and currencies at 2022 GMT:
 
    Stock indexes               Latest        Daily %
                                               change
 MSCI Emerging Markets              900.87         -0.92
                                            
 MSCI LatAm                        1544.01          1.13
                                            
 Brazil Bovespa                   79010.81          1.59
                                            
 Mexico IPC                       36112.81         -0.77
                                            
 Chile IPSA                        3642.89          1.05
                                            
 Argentina MerVal                 39225.67         3.654
                                            
 Colombia COLCAP                   1052.23         -0.29
                                            
                                                        
        Currencies              Latest        Daily %
                                               change
 Brazil real                        5.8175          0.01
                                            
 Mexico peso                       23.8330          1.54
                                            
 Chile peso                          821.1         -0.43
                                            
 Colombia peso                     3932.68         -0.76
 Peru sol                           3.4478         -0.26
                                            
 Argentina peso                    67.6300         -0.12
 (interbank)                                
                                            
 
 (Reporting by Shreyashi Sanyal and Susan Mathew in Bengaluru;
Editing by Lisa Shumaker and Dan Grebler)
  
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