EMERGING MARKETS-Chile's peso drops 2% to lead losses among Latam FX; Mexican peso outperforms

 (Updates prices)
    By Shreyashi Sanyal and Susan Mathew
    Aug 7 (Reuters) - Latin American currencies fell on Friday,
with Chile's peso looking to post its biggest intraday drop in
seven weeks as the dollar gained on its safe haven appeal after
U.S. jobs data showed an economic recovery may be plateauing. 
    Chile's peso slid 2% to hit a three-week low, weighed
down also by rising U.S.-China tensions pressuring prices of
Chile's biggest export item, copper. Data on Friday showed the
country's annual inflation tended toward the low end of the
central bank's target range.
    Brazil's real crumbled 1.3% as the dollar
strengthened after data showed employment in the United States
rose more than expected in July but marked a sharp decline from
June. Surging COVID-19 cases globally also curbed risk appetite.

    Brazil's currency fell about 3.5% this week - its
worst weekly decline in more than a month, following an interest
rate cut on Wednesday. Latest data showed Brazilian inflation
rose in July, but the annual measure remained significantly
below the central bank's year-end target. 
    Analysts had predicted a pick-up in Latam currencies in the
second half of the year on hopes that commodity prices would
rise. But with the region exceeding 5 million COVID-19 cases as
of earlier this week, and as U.S.-Chiina tensions escalate, the
outlook appears bleak.
    "We remain circumspect about Latam's medium-term outlook,"
said Gustavo Rangel, chief economist, LATAM at ING. 
    "The impact of the recession and of the COVID-related fiscal
relief over fiscal accounts is likely to be considerable. A
strong fiscal tightening is necessary to return fiscal dynamics
to a sustainable trajectory in 2021, which may create political
friction later in the year."
    Mexico's peso outperformed, up 0.3% ahead of a
central bank rate meeting next week. 
    Data showed Mexico's annual inflation in July rose, but in
line with expectations, keeping the central bank on track to cut
the key interest rate to its lowest level in four years.

    "All eyes will be on any hints about ... next steps beyond
the likely rate cut," said Olivia Alvarez Mendez, an FX market
analyst with Monex Europe.
    In Argentina, stocks rose 2%. Argentina's $65
billion debt restructuring agreement will likely lead to credit
upgrades, rating agencies told Reuters, while warning it is far
from ensuring its longer-term economic future.  
    S&P Global Ratings said it will raise its sovereign credit
ratings on Ecuador when the government issues new bonds this
month under a debt restructuring. Ecuador won overwhelming
investor support for a $17.4 billion foreign debt deal earlier
this week.
    Latin American stock indexes and currencies at 1944 GMT:
  Stock indexes           Latest   Daily %
 MSCI Emerging Markets    1088.28    -1.65
 MSCI LatAm               2012.14     -1.7
 Brazil Bovespa         102539.19    -1.52
 Mexico IPC              38011.75     0.04
 Chile IPSA               3998.31     0.75
 Argentina MerVal        52151.73    2.091
 Colombia COLCAP          1142.18     0.37
      Currencies          Latest   Daily %
 Brazil real               5.4132    -1.31
 Mexico peso              22.3620     0.03
 Chile peso                 787.5    -2.01
 Colombia peso            3740.25     0.00
 Peru sol                  3.5517    -0.28
 Argentina peso           72.7600    -0.08
 (Reporting by Shreyashi Sanyal in Bengaluru
Editing by Matthew Lewis and Grant McCool)

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