May 7, 2018 / 8:33 PM / 2 years ago

EMERGING MARKETS-LatAm currencies extend slide; Argentine peso down

 (Updates prices)
    By Bruno Federowski
    BRASILIA, May 7 (Reuters) - Latin American currencies
extended their slide on Monday because of persistent concerns
over rising U.S. interest rates, with the Argentine peso giving
up last week's gains amid a broad regional rout. 
    Currencies from Chile, Mexico and Brazil
 all slipped as did the Argentine peso, by far the worst
performing currency in the region this year. 
    The Mexican, Chilean and Argentine pesos all fell more than
1 percent, while the Brazilian real was down 0.84 percent. 
    Emerging market currencies have taken a hit in recent weeks
as traders shed high-yielding assets on expectations that
accelerating U.S. inflation and a widening fiscal deficit could
force the Federal Reserve to tighten policy faster.
    The Argentine peso weakened on Monday, after having
strengthened in its final session last week when it was
supported by decisive central bank action.
    Argentine policymakers jolted the currency back to life on
Friday with a set of announcements intended to restore
confidence in President Mauricio Macri's ability to deliver
sustainable growth while cutting inflation.
    The central bank sharply raised its monetary policy rate to
40 percent, sparking a 5.1 percent jump in the local peso to
21.88 per U.S. dollar. The government also soothed investors'
nerves by cutting its fiscal deficit target to 2.7 percent of
gross domestic product.
    The 40 percent rate "can temporarily support an exchange
rate of 21.6, but the heavy positioning, loss of credibility and
reputational cost make 22 (pesos) a new fair rate in our view,"
BTG Pactual economists said in a note.
    Argentina's new policies were the strongest reaction yet in
Latin America to capital outflows.
    Brazil's central bank has stepped up sales of currency
swaps, which function like sales of dollars for future delivery,
since the Brazilian real touched the milestone of 3.55 per
dollar for the first time since June 2016.
    Brazil's currency has still lost more than 6.5 percent in
2018, weighed down by fears about the most hard-to-predict
presidential race in decades.
    Economists at Nomura Securities said in a report that
currency investors are betting that the likely winner of the
Brazil election this year will not pursue market-friendly
reforms to curb a growing fiscal deficit.
    Forces pressuring Mexico's peso include the possible outcome
of the presidential election in July. Leftist Andres Manuel
Lopez Obrador is leading in the opinion polls and he is trying
to calm tensions with the business lobby.
    Investors remain spooked by his nationalist energy stance
and threats to scrap a multi-billion dollar Mexico City airport
    Lopez Obrador met with BlackRock Inc Chief Executive
Larry Fink on Monday and the head of the world's largest asset
manager was planning to meet with other candidates as well.

    Latin American stock indexes and currencies at 2011 GMT:
 Stock indexes                           daily %     YTD %
                             Latest       change    change
 MSCI Emerging Markets         1138.76      0.23     -1.92
 MSCI LatAm                    2813.51     -1.38      0.88
 Brazil Bovespa               82699.05      -0.5      8.24
 Mexico IPC                   46469.01     -1.11     -5.85
 Chile IPSA                    5645.84      0.42      1.46
 Chile IGPA                   28443.18      0.35      1.65
 Argentina MerVal             27463.06     -3.82     -8.66
 Colombia IGBC                12233.54     -0.55      7.59
 Venezuela IBC                18839.73     -6.59    -40.58
 Currencies                              daily %     YTD %
                                          change    change
 Brazil real                    3.5526     -0.84     -6.74
 Mexico peso                   19.4800     -1.28      1.12
 Chile peso                     628.85     -1.19     -2.26
 Colombia peso                    2814      0.19      5.97
 Peru sol                        3.278     -0.24     -1.25
 Argentina peso                21.9300     -0.23    -15.18
 Argentina peso                  21.95     -1.14    -12.39
 (Reporting by Bruno Federowski; Editing by Alistair Bell and
Grant McCool)
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