June 19, 2019 / 1:53 PM / 3 months ago

EMERGING MARKETS-Latam FX weaken ahead of Fed, Brazil central bank rate decisions

    By Susan Mathew
    June 19 (Reuters) - Most Latin American currencies retreated
on Wednesday ahead of the U.S. Federal Reserve's policy
statement, while investor anticipation regarding Brazil's
central bank meeting added pressure on the real.
    In its statement expected at 1800 GMT, the U.S. Fed is
expected to hold rates but signal a cut next month, with ECB
President Mario Draghi's dovish turn on Tuesday fuelling those
hopes.
    Lower U.S. rates bode well for developing world markets as
they tend to curb outflows from emerging markets. 
    Regionally, the real fell 0.3% to 3.872 per dollar
amid rising bets that deteriorating economic indicators could
push the Brazil's Monetary Policy Committee to cut rates soon.

    At Wednesday's meeting, the bank is expected to keep rate
unchanged. The statement is expected at market close.       
    "I think the real will weaken on the Fed meeting today,"
SEB's Chief EM Strategist, Per Hammarlund, told the Reuters
Global Markets Forum. 
    "But as global growth concern subsides, it should stay below
4 this year, even if the central bank were to cut later this
year - which is not yet my base-case, but I am starting to
increase the likelihood," he said. 
    "Pension reform approval is looking increasingly likely in
the fall. I don't think markets will run away already now on the
prospect for pension reform."
    Ahead of a market holiday on Thursday, Brazil stocks
rose 0.2% as a rise in iron ore and copper prices aided a climb
in material stocks.
    Gol Linhas Aereas Inteligentes slid to the bottom
of the index after the airline said it failed to reach an
agreement on a corporate restructuring of its subsidiary,
loyalty program Smiles Fidelidade SA.
    In Mexico, the peso slipped 0.2%. SEB's Hammarlund
said anemic growth, unpredictable policy making by President
Andres Manuel Lopez Obrador, and volatile relations with the
United States would keep a lid on Mexican asset prices.
    "(U.S. President Donald) Trump will not give Mexico a free
ride. If investors signal a growing confidence in Mexico, it
will be an opportunity for Trump to demand that Mexico does more
to stem the flow of migrants," he said.
   "The best I am hoping for with Mexico is somehow muddling
through. Even if Trump were to drop his focus on Mexico and the
wall (unlikely), AMLO's expansive fiscal policy risks
undermining the budget and thus could make investors and rating
agencies worried."
    The Chilean peso and the Peruvian sol eked out
gains. 
     
    Key Latin American stock indexes and currencies at
    Stock indexes             Latest    Daily %
                                         change
 MSCI Emerging Markets         1037.74      1.35
                                        
 MSCI LatAm                    2784.95     -0.36
                                        
 Brazil Bovespa               99242.48     -0.16
                                        
 Mexico IPC                          -         -
                                        
 Chile IPSA                          -         -
                                        
 Argentina MerVal                    -         -
                                        
 Colombia IGBC                       -         -
                                        
                                                
       Currencies             Latest    Daily %
                                         change
 Brazil real                    3.8725     -0.34
                                        
 Mexico peso                   19.1602     -0.22
                                        
 Chile peso                      694.1      0.30
                                        
 Colombia peso                 3256.05     -0.09
 Peru sol                       3.3268      0.30
                                        
 Argentina peso                      -         -
 (interbank)                            
                                        
 


 (Reporting by Susan Mathew in Bengaluru
Additional reporting by Aaron Jude Saldanha
Editing by Sonya Hepinstall)
  
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