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EMERGING MARKETS-Latam FX index hits over one-month high as dollar weakness lifts sentiment

ReutersJan 22, 2025 3:47 PM

Economists revise Brazil's rate projections upwards for 2025

Argentina logs largest energy trade surplus in 18 years in 2024

MSCI FX, stocks indexes at over one-month highs

MSCI FX up 1.1%, stocks add 1.2%

By Purvi Agarwal and Marc Jones

- An index tracking Latin American currencies hit a more than one-month high on Wednesday as new U.S. President Donald Trump held back on immediately imposing tariffs, bringing a tentative sign of relief.

The Mexican peso MXN= was last up 0.2% against the dollar, having fallen on Tuesday when Trump said he was considering slapping steep tariffs on Mexico and Canada on Feb. 1.

The currency lost over 20% of its value last year, recording its biggest annual loss against the greenback in 16 years. Along with tariff threats, uncertainty over domestic politics and higher-for-longer U.S. interest rates knocked the currency.


Investors are focused on how the Trump administration will make good on campaign pledges.

"When Trump came out (with tariff policies), EM assets were underperforming and now they have reversed their losses because investors are skeptical of the degree to which these tariffs will be implemented," said Jayati Bharadwaj, global FX strategist for TD Securities.

"For Latam, it should now be more about what global trade with the U.S. looks like and what Trump's communications will be."

Among other hard-hit currencies, the Brazilian real BRL= rose 1.3% against the dollar, set for its third straight session of gains after its 27% plunge last year.

Brazilian government officials reaffirmed their commitment to balancing public accounts, as markets continue to question the administration's ability to meet its fiscal targets, which sent the real to record lows last month.

Economists have ramped up bets on Brazil's interest-rate projections this year, citing rising inflation expectations and concerns over the state of the government's finances.

Currencies in the export-heavy Chilean CLP= and Colombian COP= economies jumped 0.8% and 0.6% respectively in light trading, with the Chilean peso hitting a near three-week high.

Argentina's peso ARS= was little changed. The country logged its largest energy trade surplus in 18 years last year, in another set of data that marked a win for President Javier Milei's efforts to turn the economy around.

Major investment banks such as JPMorgan JPM.N have argued that the government could lift long-imposed capital controls and even return to international bond markets this year, especially if it can seal a new IMF deal.

MSCI's index tracking Latin American currencies .MILA00000CUS was up 1.1%, while the stocks gauge .MILA00000PUS rose 1.2%. Both indexes were set for their fourth consecutive session of gains.

Brazilian brewer Ambev ABEV3.SA dropped more than 1% after Citi and Santander downgraded their ratings on the stock.

Elsewhere, Chinese assets remained under pressure after fresh talks of tariffs by Trump. He said his administration was considering 10% tariffs on Chinese imports, compared with a 60% tariff he pledged during his election campaign.

"This morning we have seen 10% China tariffs are on the cards and that is throwing a bit of doubt on our more moderate tariff process (view)," said Amundi's head of emerging markets Yerlan Syzdykov.

"It is hard to have a base case scenario," he added, given the differing reports on how quickly tariffs could be introduced. "We shouldn't be complacent ... gradual does not mean more moderate."

Key Latin American stock indexes and currencies:

Equities

Latest

Daily % change

MSCI Emerging Markets .MSCIEF

1082.69

0.15

MSCI LatAm .MILA00000PUS

1959.27

1.15

Brazil Bovespa .BVSP

123327.7

-0.01

Mexico IPC .MXX

50412.42

-0.08

Chile IPSA .SPIPSA

7044.78

0.09

Argentina Merval .MERV

2662420.41

1.63

Colombia COLCAP .COLCAP

1390.12

-0.15

Currencies

Latest

Daily % change

Brazil real BRL=

5.9419

1.33

Mexico peso MXN=

20.579

0.16

Chile peso CLP=

993.9

0.82

Colombia peso COP=

4286.47

0.65

Peru sol PEN=

3.7218

0.15

Argentina peso (interbank) ARS=RASL

1046.5

0.00

Argentina peso (parallel) ARSB=

1215

1.65

(Reporting by Purvi Agarwal in Bengaluru; Editing by Rod Nickel)

((Purvi.Agarwal@thomsonreuters.com;))

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