Buoyant dollar weighs on Latam FX; stocks sink


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The Brazilian real led a sharp drop

in Latin American currencies on Monday as traders flocked to the

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safe-haven U.S. dollar while weaker commodity prices and

escalating fears of a recession drove stocks down to a two-month

low.

The UK government’s fiscal plans released last week added to

jitters around rising interest rates and the potential for a

global economic downturn, pushing the sterling to a record low

against the dollar.

As the dollar hovered near a two-decade high, currencies

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in resource heavy Latin America fell 2%, hitting

their lowest level in more than seven weeks.

Brazil’s real, fell 2.4% to its lowest in two

months, extending last week’s declines.

Crude and metal prices saw a sharp drop, amid concerns

about a global economic downturn hurting demand. Oil exporter

Mexico’s peso fell 1% while Colombia’s peso

tumbled 2.3%.

Top copper producer Chile’s peso fell 2% and the

Peruvian sol was down nearly 1% against the dollar.

“The sentiment is the worst it’s been in the entire year

for most of the emerging markets because of the dollar strength

and Latin American countries are no different,” said Robert

Lutts, chief investment officer at Cabot Wealth Management.

“Investors are quite cautious and they’re expecting more

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problems going forward.”

Meanwhile, Latam stocks fell nearly 4% and

were set for their largest one-day percentage drop since

mid-June.

Brazil’s Bovespa and Colombia’s COLCAP

fell about 2.2% and nearly 3% respectively.

Brazil’s central bank said it would set a 0.7% limit for

interchange fees for prepaid cards, which are offered by

fintechs in free digital accounts, in a setback for the booming

sector.

Despite a risk off mood this year, Latin American

currencies have fared better than many emerging market peers as

regional central banks started their hiking cycles early and

went big, staying ahead of the Fed.

So far this year, Brazil’s real has advanced 3.6% despite

volatility ahead of elections in October.

Brazilian Economy Minister Paulo Guedes said on Monday that

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the country need not to fear recession abroad or a stronger

dollar, arguing that Latin America’s largest economy has its own

growth dynamics.

Investors are awaiting a slew of central bank policy

decisions this week, with the Czech National Bank expected to

hold its key interest rate unchanged while the Bank of Mexico is

expected to raise its key interest rate to a record 9.25%

Key Latin American stock indexes and currencies at 1930 GMT:

Stock Latest Daily % change

indexes

MSCI Emerging Markets 888.57 -1.91

MSCI LatAm 2038.62 -3.91

Brazil Bovespa 109464.37 -2.02

Mexico IPC 44977.52 -0.92

Chile IPSA 5181.10 -0.5

Argentina MerVal 138423.23 -3.154

Colombia COLCAP 1124.72 -2.81

Currencies Latest Daily % change

Brazil real 5.3854 -2.57

Mexico peso 20.3800 -0.99

Chile peso 990.5 -1.98

Colombia peso 4535.73 -2.27

Peru sol 3.9227 -0.30

Argentina peso (interbank) 146.2600 -0.55

Argentina peso (parallel) 282 1.77

(Reporting by Bansari Mayur Kamdar and Amruta Khandekar in

Bengaluru; Editing by Alistair Bell)

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