June 9, 2017 / 10:46 PM / a year ago

EMERGING MARKETS-Mexican peso hits 10-month high as Trump fears ease

 (Recasts, adds closing prices throughout)
    SAO PAULO/MEXICO CITY, June 9 (Reuters) - Mexico's peso
currency touched a near 10-month high on Friday and data on
derivatives market bets showed investors have taken the most
optimistic view on the currency in four years.
    The Mexican currency clawed its way back to levels last seen
before Donald Trump was elected U.S. president as higher oil
prices helped lift emerging market currencies.
    The peso strengthened to 18.1125 per dollar, its firmest
level since Aug. 18, before retreating slightly. 
    Trump's election victory drove the currency to a record low
on fears he would rip up the North American Free Trade
    But the peso rebounded and has been the best-performing
major currency this year, up more than 14 percent against the
dollar, as the Trump administration moved toward talks to
renegotiate the NAFTA.
    Data on Friday showed the number of bets by speculators for
a stronger peso rose to a four-year high.
    Long positions as of June 6 recorded by the Commodity
Futures Trading Commission rose to 115,601 contracts - the
highest since late May 2013.
    Some analysts think investors have become overconfident in
further peso gains. Analysts at Citi this week warned they would
not make big bets on further gains in the peso at these levels
after analyzing other rallies in emerging market currencies seen
since 2004.
    In Brazil, yields paid on Brazilian interest rate futures
contracts          dipped after annual inflation slowed to a
10-year low, spurring bets that the central bank would likely
cut rates sharply next month.             
    Rate futures' yields reflected the perception of a nearly 90
percent probability that Brazil's central bank would lower the
benchmark Selic rate by 75 basis points to 9.5 percent at its
July monetary policy meeting           .
    Investors unwound bets on a 50-basis-point reduction, an
outlook that gained traction after the central bank said last
month it could reduce the pace of cuts due to growing political
uncertainty. The bank cut rates by 100 basis points in May.
    In foreign exchange and stock markets, Brazilian traders
were monitoring the deliberations of the country's top electoral
court in a case that could unseat President Michel Temer if
judges rule he used illegal campaign funding in 2014.
    Even though the court seemed poised to toss out the case,
the president faces a separate corruption investigation, stoking
investor caution as Brazil's stocks and currency slipped.

 (Reporting by Bruno Federowski and Michael O'Boyle; editing by
G Crosse)
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