January 18, 2013 / 12:28 AM / 5 years ago

EMERGING MARKETS-Brazil yield curve steeper as cenbank holds rates

* Mexican peso firms to ten month high, up 0.2 pct
    * Brazil keeps Selic at all-time low, warns of inflation
    * Brazilian real up 0.21 pct

    By Walter Brandimarte
    RIO DE JANEIRO, Jan 17 (Reuters) - Mexico's peso firmed to a
10-month high on Thursday, helped by improved U.S. data, while
Brazil's yield curve steepened after the central bank
acknowledged growing risks of inflation.
    I mproved jobs and housing data in the United States,
Mexico's top trading partner, helped drive the peso's strength
as it tr acked a rise in the S&P 500 to a five-year intraday
high. [ I D:nL1E9CHHCX]
    Solid U.S. demand for local exports has helped shield Mexico
from sluggish global growth. The peso has gained more than 3
percent since late December. 
    "The currency has gotten some good momentum, helped by the
appeal of Mexico's situation," said Joel Virgen and analyst at
Citigroup's Mexican unit Banamex.
    The peso  firmed 0.2 percent to 12.5950 per
dollar, its strongest close since March last year, but it 
pulled back from an even stronger intraday level.
    The cost of dollars in pesos is close to testing a key
support level. A break below 12.55 to a 16-month high could
herald further gains for the peso or investors could soon be
quick to take profits, sending the dollar higher.
    Concerns that U.S. lawmakers ma y fail to extend the
government's borrowing authority in the coming weeks could weigh
on the peso.  
    "Our reasoning continues to be that this first quarter we
will see a dose of fiscal uncertainty in the United States,"
said Virgin. 
    A S&P official said on Thursday progress on a raft of
refor m s pr oposed by Mexico's new president Enrique Pena Nieto
c o uld lead to more favorable sovereign debt ratings.
[I D:nL1E9CH7ZH]
    Brazil's yield curve steepened on Thursday after the central
bank decided to hold the base Selic rate at an all-time low of
7.25 percent even as it acknowledged growing risks of inflation.
    Short-term interest rates fell or remained flat, with the
contract maturing in Jan. 2014 unchanged at 7.16
percent, after the bank late on Wednesday repeated its position
that keeping the Selic stable for a prolonged period remains the
"best strategy" to curtail inflation. 
    But longer-term rates climbed higher, with the contract for
Jan. 2015 up 4 basis points at 7.8 percent, on the
perception that inflation will be a problem the central bank
will have to address down the road.
    "If the central bank wanted to anchor inflation
expectations, it did not succeed in that statement," said Andre
Perfeito, an economist with Gradual Investimentos in Sao Paulo.
    Brazil's consumer inflation closed 2012 at 5.84 percent,
well above a government target of 4.5 percent, but still within
its tolerance margin of 2 percentage points. Prices continued to
gain traction in 2013, complicating President Dilma Rousseff's
bid to spur growth by keeping rates at all-time lows.
    The central bank said in its statement after Wednesday's
monetary policy meeting that risks to inflation increased in the
short term. It said a recovery in domestic activity has been
weaker than expected.
    The Brazilian real  gained 0. 2 1 percent to close
at 2 .0391 per dollar, within a narrow range of 2.0-2.05 per
dollar it has been trading since the beginning of the year.
    Latin American FX prices at 23:55 GMT:
 Currencies                         daily %    YTD %
                                     change   change
 Brazil real                2.03 91     0. 21     0. 00 
 Mexico peso              12.5950     0.0 2     2. 17 
 Chile peso               472.1000     0.57     1.40
 Colombia peso           1765.3500     0.51     0.04
 Peru sol                   2.5480    -0.04     0.12
 Argentina peso             4.9475     0.05    -0.71

 Argentina peso             7.4900     0.13    -9.48
0 : 0
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