Latam currencies fall as dollar surges amid UK turmoil, recession worries

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Latin American currencies fell on

Friday as safe-haven demand drove the dollar back towards

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two-decade highs amid political turmoil in the United Kingdom

and global recession worries.

The broader index of emerging market currencies

was flat after having gained up to 0.3% during

the day.

Hungary’s forint was a notable outperformer, up

2.4% after the central bank stepped in to lift the currency from

record lows, ramping up interest rates and promising foreign

currency from its reserves to pay for the country’s surging

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energy imports.

Brazil’s real fell 0.3%, while Mexico’s peso

lost 0.4%. As crude prices fell, oil exporter Colombia’s peso

slid 1.2% to lead declines among regional peers.

The pound slumped after British Prime Minister Liz

Truss fired her finance minister Kwasi Kwarteng and scrapped

parts of the government’s economic package in a desperate bid to

stay in power and survive the market and political turmoil

gripping the country.

The euro fell 0.3% while the dollar climbed.

“The big story is still the dollar,” said Christian

Lawrence, senior market strategist for Latam FX at Rabobank.

“The key is what is happening with the Fed and interest rate

differentials,” he said, adding that in the EM space he expects

to see continued outperformance in Latin American markets.

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Meanwhile, bets for another super-sized interest rate hike

from the U.S. central bank rose after hotter-than-expected

inflation data on Thursday. The European Central Bank,

meanwhile, should raise interest rates by 75 basis points at

both of its upcoming meetings this year, a policymaker said.

Aggressive monetary policy tightening to curb stubbornly

high inflation has sapped risk appetite as investors fret about

the likely prospect of a recession.

The EM currencies index, which is on course for its worst

yearly performance on record, was seen closing down around 0.9%

on the week – its ninth weekly decline in 10 weeks.

The stocks counterpart is down about 30%, on track for its

worst year since the 2008 global financial crisis.

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Meanwhile, Russian President Vladimir Putin said on Friday

there was no need for massive new military strikes on Ukraine

and that Russia was not looking to destroy the country.

Latin American stocks eked out small gains, although they

looked tentative as U.S. stocks slipped in a choppy session.

Wall Street gained earlier in the day after big U.S. banks

reported earnings, with JPMorgan beating estimates.

Morgan Stanley however, skid after an earnings miss.

Key Latin American stock indexes and currencies:

Stock indexes Latest Daily %

change

MSCI Emerging Markets 864.30 1.14

MSCI LatAm 2153.25 0.01

Brazil Bovespa 114171.96 -0.11

Mexico IPC 45905.21 0.3

Chile IPSA 4969.71 0.17

Argentina MerVal 140107.13 -0.466

Colombia COLCAP 1181.92 0.36

Currencies Latest Daily %

change

Brazil real 5.2849 -0.26

Mexico peso 20.0602 -0.46

Chile peso 947.5 -1.12

Colombia peso 4629.13 -1.28

Peru sol 3.98 -0.84

Argentina peso 151.6000 -0.20

(interbank)

(Reporting by Susan Mathew in Bengaluru; Editing by Paul Simao)