EMERGING MARKETS – Latam FX slips after US Fed hikes rates by half a percentage point

By Susan Mathew and Bansari Mayur Kamdar

December 14 (Reuters)Latin American currencies underperformed their emerging market peers on Wednesday after the US Federal Reserve projection of its target federal funds rate vsI’m higher than expectedwhile the Brazilian real slipped due to the contraction in economic activity.

The Fed raised interest rates by half a percentage point and predicted at least another 75 basis points of higher borrowing costs by the end of 2023 as well as rising unemployment and a near stall in economic growth in the world’s largest economy.

“At the moment, the dollar is up slightly as the Fed will indeed continue to raise interest rates and should be over 5.0% by the time they are over. on for an uncertain 2023,” said Juan Perez, chief trading officer at Monex.

“BRL, MXN and LATAM all appear to be slightly weaker, but we think there will be other economic variables at play that will lift the currencies against the dollar, even with a hawkish, but predictable, Fed.”

Risky emerging market assets have been hit, but investors expect emerging markets to hold up against developed markets next year, with HSBC survey predicting ‘significant improvement’ in investor sentiment, led by America Latin.

The true of Brazil BRL=BRBYslipped 0.4% after data showed economic activity contracted in October as aggressive interest rate hikes to fight inflation weighed on growth.

New Finance Minister Fernando Haddad has promised to bring forward the timetable for news fiscal rulesconsidered crucial for cleaning up public finances, but has not committed to any date.

Haddad too minimized possible changes to the country’s state-owned enterprises law to make it easier for politicians to take on roles in state-owned enterprises, saying effective auditing of the federal government is more important.

President-elect Luiz Inacio Lula da Silva, meanwhile, appointed Workers’ Party (PT) veteran Aloizio Mercadante will lead the BNDES development bank.

“Mercadante’s appointment for BNDES raises fears that the subsidized loan policy implemented in the past could resume,” Citigroup strategists said in a note.

Political unrest continued to weigh on Peruvian soil PEN=.

The Peruvian Minister of Defense announced a which will come into effect in the next few hours and will allow soldiers to help police maintain public safety after a week of fiery protests and roadblocks triggered by the ousting of former President Pedro Castillo.

“The unrest is already causing economic damage, and the fallout will be even greater if the protests begin to impact mining activity,” said Kimberley Sperrfechter, EM economist at Capital Economics. Peru is the world’s second largest producer of copper.

The Supreme Court considers the prosecution’s request for a maximum of 18 months of preventive arrest for Castillo after being charged with rebellion and conspiracy.

The new Peruvian government plans economic recovery measures for regions rocked by protests, but will remain stable on “non-negotiable” budget deficit targets, the economy minister said.

If the government loosens the purse strings, it could put a strain on Peru’s public finances, while sustained protests could lead to shortages, which would force the central bank to remain restrictive as inflation is likely to rise, said she declared.

Major stock indices and currencies in Latin America:

Stock indices


% daily change

MSCI Emerging Markets .MSCIEF



MSCI Latam .MILA00000PUS



BrazilBovespa .BVSP



Mexico IPC .NXX






Argentina MerVal .MERV








% daily change

Brazilian real BRBY



Mexican weight MXN=D2



chilli weight CLP=CL



Colombian weight COP=



Soil of Peru PEN=PE



Argentinian pesos (interbank) ARS=RASL



Argentinian peso (parallel) ARSB=



(Reporting by Susan Mathew and Bansari Mayur Kamdar in Bengaluru; Editing by Arun Koyyur and Nick Zieminski)


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

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