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Currencies pop as dollar slides after U.S. data


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Emerging market currencies rallied on

Tuesday, as the dollar slid after data signaled the U.S. economy

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might be cooling, tempering bets of a large interest hike by the

Federal Reserve next month.

Latin American currencies led the charge, with Brazil’s real

jumping 1.4%, while Mexico’s peso looked set for its best

session in two weeks.

The dollar, which at more than a one-month high amid

recession worries had pressured riskier currencies earlier on

Tuesday, dropped 0.4% after data showed U.S. home sales fell in

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July and private sector activity contracted again in August.

This weakened bets for a third consecutive 75-basis-point

rate hike by the Fed at its Sept. 20-21 meeting. Earlier this

week, Fed officials called for the central bank to speed up its

monetary policy tightening, dulling risk appetite.

“Much weaker than expected data is suggesting that the U.S.

economy may be contracting much faster than the market

anticipated and that is going to lead to a much more neutral Fed

stance,” said Boris Schlossberg, managing director at BK Asset

Management.

“The market was in this mode of the Fed absolutely,

resolutely hiking 75 basis points and now there is a much

greater doubt of that. U.S. yields came in and killed the dollar

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because it was so grossly overbought, and everything against a

dollar just popped.”

South Africa’s rand reversed session losses to rise

0.1%, as did several Asian currencies, with China’s yuan

rising 0.2% after hitting two-year lows.

Chile’s peso moved decidedly away from its weakest

level in one month, surging 2.2%, as the currency was also

bolstered by rising copper prices. Crude exporter Colombia’s

currency rose 0.5%.

The Mexican peso climbed 0.8%, gaining for the second

straight day. The currency has gained 2.6% for the year, while

the MSCI’s index for Latin American currencies

jumped over 12%.

“MXN has been a standout performer in EM FX this year,” said

Oliver Harvey, macro strategist at Deutsche Bank.

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“The worst of the deterioration in Mexico’s current account

appears behind us. Mexico’s goods deficit owes predominantly to

petroleum imports.”

Brazil’s Bovespa index jumped 2.2%, with miners and

energy stocks leading gains as oil, copper and iron ore prices

rose.

Meanwhile in Cuba, the government announced on Monday it

would begin exchanging dollars and other foreign currency for

the local peso on a limited basis after a two-year hiatus during

which residents turned to an informal money market for the cash.

Key Latin American stock indexes and currencies at 2006 GMT:

Stock indexes Latest Daily %

change

MSCI Emerging Markets 989.87 -0.2

MSCI LatAm 2235.65 3.12

Brazil Bovespa 112948.58 2.22

Mexico IPC 47976.68 -0.08

Chile IPSA 5377.11 0.69

Argentina MerVal 136719.13 3.377

Colombia COLCAP 1289.54 -0.29

Currencies Latest Daily %

change

Brazil real 5.0988 -0.03

Mexico peso 19.9586 0.87

Chile peso 915.9 2.29

Colombia peso 4350.95 0.96

Peru sol 3.8492 0.52

Argentina peso (interbank) 136.9400 -0.21

Argentina peso (parallel) 293 -0.34

(Reporting by Susan Mathew and Shreyashi Sanyal in Bengaluru;

Editing by Paul Simao)

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