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Latam currencies fall against strong greenback ahead of Fed rate decision


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Most Latin American currencies fell on

Tuesday with the dollar staying close to recent peaks as

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investors braced for a sharp interest rate hike from the U.S.

Federal Reserve on Wednesday.

The dollar index stayed close to two-decade highs,

with markets pricing in 83% odds of a third consecutive

75-basis-points rate hike from the Fed while bets of an even

bigger 100-basis-points rate hike stood at 17%.

“The strong dollar environment is particularly worrying for

those EMs with large dollar debts, including parts of Latin

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America,” William Jackson, chief emerging markets economist at

Capital Economics, wrote in a note.

“Meanwhile, there is a group of countries where dollar debt

are large but currencies are not down sharply on a year-to-date

basis, such as Colombia and Chile. … That could lead to

sharper falls in their currencies and higher dollar debt

servicing costs,” Jackson added.

Colombia’s peso slipped 0.4% while Chile’s peso

fell 1.1%. The two currencies are down around 8% each so

far this year, lagging all major regional peers in 2022.

Along with the Fed, a host of rate decisions by other

central banks are due this week, including Brazil on Wednesday

and Turkey and South Africa on Thursday.

Investor sentiment in Latam markets, buoyed earlier this

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year by higher commodity prices, has been bogged down by a

sturdy dollar and a risk-off mood in recent weeks amid

heightened recession worries and rampant inflation.

Political noise has also weighed on markets, with Brazil’s

presidential election outcome awaited in October.

A poll on Monday showed leftist front runner Luiz Inacio

Lula da Silva slightly extended his lead over President Jair

Bolsonaro.

Brazil’s real inched up. The country’s economy

minister said on Monday that monetary tightening should be

ending in the country, predicting falling interest rates next

year.

The Mexican peso slipped 0.3%. Latam’s second-largest

economy likely grew by 2.9% in August compared with the same

month a year earlier, a preliminary estimate from national

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statistics agency INEGI showed.

A dip in oil and copper prices also weighed on the

resource-rich region.

Returning after an extended weekend, Chilean stocks tumbled

2.7%, logging their worst session in two weeks.

Elsewhere, Ecuador reached an agreement to restructure its

debt with Chinese banks, the government said Monday, providing

relief worth some $1.4 billion until 2025.

Key Latin American stock indexes and currencies at 1842 GMT:

Stock indexes Latest Daily %

change

MSCI Emerging Markets 945.18 0.71

MSCI LatAm 2185.40 0.71

Brazil Bovespa 111785.41 -0.03

Mexico IPC 46995.63 0.43

Chile IPSA 5371.98 -2.73

Argentina MerVal 148342.22 -1.278

Colombia COLCAP 1204.22 -0.1

Currencies Latest Daily %

change

Brazil real 5.1552 0.20

Mexico peso 20.0020 -0.46

Chile peso 932.7 -0.56

Colombia peso 4420.96 -0.44

Peru sol 3.8978 -0.98

Argentina peso 144.6300 -0.18

(interbank)

(Reporting by Amruta Khandekar, Anisha Sircar and Susan Mathew

in Bangaluru; editing by Jonathan Oatis and Leslie Adler)

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