EMERGING MARKETS-Stronger dollar weighs on Latam FX, Mexican peso falls as rate cut expectations rise

By Shashwat Chauhan and Lisa Pauline Mattackal

Feb 22 (Reuters) – Most Latin American currencies eased on Thursday against a stronger dollar, with Mexico’s peso slipping after a surprise drop in consumer inflation bolstered bets on local interest rate cuts.

Mexico’s currency =D3> dropped as much as 0.6% to its lowest in over one week after consumer prices fell in the first half of February. It was last down 0.4% at 17.1073 to the dollar.

Slowing inflation data lifted expectations that the central bank was on track to cut interest rates soon, which was reinforced by minutes from its last meeting.

“The drop back in Mexico’s headline inflation rate in the first half of February leaves Banxico on course to begin an easing cycle at March’s Board meeting,” wrote Jason Tuvey, deputy chief emerging markets economist at Capital Economics.

“That said, the rise in core services inflation reinforces our view that the easing cycle, when it begins, will be slow going.”

MSCI’s gauge for Latin American currencies .MILA00000CUS fell 0.4%, set for its worst session in two weeks against the U.S. dollar =USD, which rebounded from three-week lows touched earlier on Thursday as investors looked ahead for fresh clues on when the U.S. Federal Reserve would start easing monetary policy.

Latin American currencies have come under pressure in recent weeks as investors continue to push back expectations for a reduction in U.S. borrowing costs, even as many regional central banks prepare to cut rates.

Chile’s peso CLP= dropped over 1% to its lowest since October 2022.

Colombia’s peso COP= fell 0.3% against the dollar, Brazil’s real BRBY=fell 0.1%, and Peru’s sol PEN=rose 0.4%.

Brazil’s main stock index .BVSProse 0.2% early on, tracking an upbeat start on Wall Street .N and lifted by a 1.2% rise in shares of miner Vale VALE3.SA.

Brazilian food retailer GPAPCAR3.SA fell 5.1% despite reporting a narrower fourth quarter loss.

A broader gauge of Latin American stocks .MILA00000PUS, on the other hand, dipped 0.5%, underperforming a 0.9% jump in broader EM stocks .MSCIEF as global markets cheered U.S. chipmaker Nvidia’sNVDA.O stellar results.

Elsewhere, JPMorgan said Venezuela‘s sovereign bonds and those of state oil company PDVSA will return to its highly influential emerging market bond indexes over a three-month period starting from the end of April.

Argentina’s Merval index .MERV jumped 3.5% in its best day in over a month.

Elsewhere in emerging markets, the Turkish lira TRYTOM=D3 was last at 30.9855 after the country’s central bank its key interest rate unchanged at 45%, as expected after last month’s hike.

HIGHLIGHTS

** Brazil’s federal tax revenue up 6.67% in strongest January ever

** Nigeria’s economy grows steadily as oil output rises

Key Latin American stock indexes and currencies at 2015 GMT:

Latest

Daily % change

MSCI Emerging Markets .MSCIEF

1029.23

0.84

MSCI LatAm .MILA00000PUS

2564.97

-0.45

Brazil Bovespa .BVSP

130226.09

0.15

Mexico IPC .MXX

57235.56

0.38

Chile IPSA .SPIPSA

6237.63

-0.22

Argentina MerVal .MERV

1076030.02

3.513

Colombia COLCAP .COLCAP

1278.44

0.76

Currencies

Latest

Daily % change

Brazil real BRBY

4.9564

-0.09

Mexico peso MXN=D2

17.1071

-0.40

Chile peso CLP=CL

978.5

-1.08

Colombia peso COP=

3927.5

-0.25

Peru sol PEN=PE

3.7755

0.36

Argentina peso (interbank) ARS=RASL

838.3000

-0.05

Argentina peso (parallel) ARSB=

1065

4.69

(Reporting by Shashwat Chauhan in Bengaluru; Editing by Angus MacSwan and Jonathan Oatis)

((Shashwat.Chauhan@thomsonreuters.com;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.