EMERGING MARKETS-Mexico peso tumbles to weakest since surprise rate hike
By Bruno Federowski SAO PAULO, June 13 (Reuters) - The Mexican peso tumbled on Monday for a third consecutive day to its weakest since a surprise interest rate hike in February aimed at fending off speculators. Fears that Britain may be on the verge of voting to leave the European Union next week have sent investors scurrying for the safety of U.S. Treasuries, weighing on emerging market assets. Traders also held back risky bets ahead of a U.S. Federal Reserve meeting this week, though most believe the central bank will stand pat. The Mexican peso fell by as much as 1 percent to 18.8275 to the dollar. It later pared losses to trade at 18.76 to the dollar, 0.7 percent weaker on the day. It has underperformed its Latin American peers for months, dropping 8.4 percent so far this year. The Colombian peso , whose performance is also greatly influenced by movements in oil, strengthened 6 percent in the period. The Mexican central bank reacted in an impromptu meeting in February by hiking rates and directly selling dollar to banks. This assuaged investors for a while, but the currency soon resumed its decline as worries mounted over the global economy and weakness in oil. Central bank governor Agustin Carstens said last month the peso is not seeing a new speculative attack despite the recent slump, suggesting he was reluctant to make another surprise move and prompting investors to pare back bets on further policy tightening. But yields on Mexican interest rate swaps have spiked back in the last three sessions of peso losses as investors bet Mexico's central bank could hike interest rates in its next scheduled monetary policy meeting on June 30. Many investors use the highly liquid Mexican peso, the only Latin American currency which trades 24 hours a day, as a way to hedge their exposure to the wider region. Nomura Securities analyst Benito Berber highlighted the risk of policies curtailing Mexico-U.S. financial flows if Donald Trump becomes president, as well as shrinking government revenues from state-controlled oil company Pemex. "We believe that the central bank would not have sufficient tools to stabilize the currency if these shocks were to hit the economy, particularly if they occurred simultaneously," Berber wrote in a client note. Global risk aversion weighed on stocks and currencies from other Latin American markets on Monday. Brazil's benchmark Bovespa stock index slipped 0.1 percent, but losses were limited by a rally in shares of Ultrapar Participações SA. The country's second-biggest fuel distributor, Ultrapar's Ipiranga unit, agreed on Sunday to purchase smaller peer Alesat Combustíveis SA for 2.17 billion reais ($627 million). Shares of Oi SA, which are not part of the Bovespa index, sunk 15 percent after the unexpected resignation of its chief executive, raising concerns about negotiations to restructure its huge debt load. Key Latin American stock indexes and currencies at 1420 GMT: Stock indexes daily % YTD % change change Latest MSCI Emerging Markets 809.48 -1.74 3.74 MSCI LatAm 2083.00 -1.27 15.3 Brazil Bovespa 49357.80 -0.13 13.86 Mexico IPC 45022.18 -0.34 4.76 Chile IPSA 3944.04 -0.26 7.17 Chile IGPA 19525.61 -0.24 7.57 Colombia IGBC 9829.09 -0.23 15.00 Venezuela IBC 15159.16 0.19 3.91 Currencies daily % YTD % change change Latest Brazil real 3.4590 -0.87 14.11 Mexico peso 18.8160 -0.98 -8.43 Chile peso 686.8 -0.50 3.33 Colombia peso 2990.5 -0.67 5.98 Peru sol 3.332 -0.09 2.46 Argentina peso (interbank) 13.8000 0.07 -5.92 Argentina peso (parallel) 14.26 0.35 0.07 (Reporting by Bruno Federowski; Additional reporting by Michael O'Boyle; Editing by W Simon)
© Thomson Reuters 2016 All rights reserved.