July 31, 2019 / 8:36 PM / 25 days ago

EMERGING MARKETS-Strong dollar knocks Latam FX lower after Fed

 (Updates throughout with closing prices)
    By Sruthi Shankar
    July 31 (Reuters) - Latin American currencies weakened
against a strong dollar on Wednesday after the U.S. Federal
Reserve cut interest rates as expected, but chief Jerome
Powell's comments disappointed investors who had hoped for a
more dovish stance.
    In a statement at the end of its two-day policy meeting, the
Fed said it had decided to cut rates by 25 basis points "in
light of the implications of global developments for the
economic outlook as well as muted inflation pressures."

    However, Powell's comments that Wednesday's rate cut was
different from the start of a lengthy series of rate cuts
quashed expectations the U.S. central bank will embark on an
easing cycle.
    Latin American currencies declined, in-line with their
emerging market peers. The Brazilian real, which rallied
1% ahead of the Fed statement, was down 0.43%. The Mexican peso
, the Chilean peso and the Peruvian sol fell
between 0.2% and 0.6%.
    Simon Harvey, an FX analyst at Monex Europe pointed to
Powell striking a more hawkish tone at the news conference
hitting emerging market currencies.
    "The market was aggressively pricing in a dovish Fed, and
given that, there is plenty of upside for U.S. yields and the
dollar," said Harvey.
    Emerging markets have seen large inflows this year on hopes
major central banks will turn to monetary policy easing to
combat a global growth slowdown.
    Brazil's central bank is also expected to come out with its
interest rate decision at 2100 GMT. Economists polled by Reuters
expect the Banco Central to cut its benchmark interest rate to a
record low, although economists are divided on the pace and
depth of an easing cycle.
    "The market is pricing 25-50 basis point rate cut, but at
the same time the expectations are relatively aggressive when it
comes to the one-year horizon," said Harvey. 
    Brazil, Latin America's largest economy, is struggling to
emerge from a crippling recession, with the government focused
on passing through Congress a pension overhaul it hopes will
prop up public finances and kick-start growth. 
    Stocks in Sao Paulo fell about 1% while those in
Mexico City shed 0.6% after data showed the economy
narrowly avoided slipping into recession during the first half
of 2019.
    The Mexican government's recently announced $25 billion
stimulus package is likely to have a limited impact on economic
growth, an analyst for credit ratings agency Moody's said,
adding she sees no reason to change growth forecasts.
 
    Colombia's peso was an outlier, gaining 0.6% after
seven days of losses, while the IGBC index moved a touch
higher.
    Colombia's government earlier this week presented an $84
billion proposal for its 2020 budget to Congress, and on
Wednesday said it has proposed increasing the amount of
so-called TES treasury bonds it will issue in 2020 by 7 trillion
pesos ($2.12 billion).
    Latin America's fourth-largest economy has a fiscal deficit
goal of 2.1% of gross domestic product for 2020, considered key
to maintaining its current credit ratings. 
    
  Key Latin American stock indexes and currencies at 1947 GMT:
    
     Stock indexes             Latest     Daily %
                                          change
 MSCI Emerging Markets          1034.30      -0.85
                                         
 MSCI LatAm                     2821.76      -1.16
                                         
 Brazil Bovespa               101947.62      -0.96
                                         
 Mexico IPC                    40924.65      -0.57
                                         
 Chile IPSA                     4988.13      -0.26
                                         
 Argentina MerVal              42188.83     -0.646
                                         
 Colombia IGBC                 12780.98       0.32
                                         
                                                  
         Currencies            Latest     Daily %
                                          change
 Brazil real                     3.8065      -0.43
                                         
 Mexico peso                    19.1380      -0.39
                                         
 Chile peso                       703.1      -0.63
                                         
 Colombia peso                  3278.43       0.54
 Peru sol                         3.304      -0.21
                                         
 Argentina peso (interbank)     43.8750       0.22
                                         
 
    
    

 (Reporting by Sruthi Shankar in Bengaluru
Editing by Chris Reese)
  
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