June 13, 2016 / 2:52 PM / 2 years ago

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
    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
    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
    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
    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
 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
 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)
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