EMERGING MARKETS-Colombian, Mexican peso lead Latam FX lower on tariff fears

By Purvi Agarwal and Lisa Pauline Mattackal

Jan 27 (Reuters) - The currencies of Colombia and Mexico slumped on Monday, leading broad declines among Latin American markets after a trade spat between the U.S. and Colombia re-ignited fears about the impacts of U.S. President Donald Trump's proposed tariffs on the region.

The U.S. and Colombia pulled back from the brink of a trade war on Sunday after the White House said Colombia had agreed to accept military aircraft carrying deported migrants.

That led to the U.S. holding off on draft orders imposing tariffs and sanctions, which included a 25% tariff on imports that could go up to 50% in a week, among others, on the third-largest U.S. trading partner in Latin America.

Despite the final deal, Colombia's peso COP= was 1.4% lower on the day, set for its worst day in more than two months. U.S.-listed Colombia ETF GXG.N fell over 2% in early trading.

The Mexican peso MXN= depreciated 1.7% after logging its best week in 2025 on Friday. Mexico's peso is among the most reactive to tariff headlines as 80% of the country's exports go to its Northern neighbor.

The spat highlights how uncertainty over tariffs have clouded the outlook for EMs, compounding pressures from economic uncertainty and the prospect of higher-for-longer U.S. interest rates.

"This shows how concessions, not permanent tariffs, are likelier to be the norm under Trump,' said Thierry Wizman, global FX & rates Strategist at Macquarie.

"The Bottom Line is that Trump needed to prove that his tariff threats are credible, and Colombia was likely chosen as a first target because it 'fit the bill' for being made an example of...,"

Most other Latin American markets fell, with MSCI's index tracking the region's currencies .MILA00000CUS was down 1%. The stocks measure .MILA00000PUS was off 0.8%, set to snap a six-session winning streak.

Economies including China and Mexico are on edge after Trump last week earmarked Feb. 1 for additional tariffs on the country's top trading partners.

BofA Global Research analysts said U.S. tariffs could force Mexico's central bank to keep rates on hold, "as the peso is likely to weaken significantly in that scenario."

This week, investors will also closely watch a rate decision from the Fed, which is expected to keep rates on hold.

Rate decisions are also due from Brazil, Colombia and Chile through the week.

Inflation expectations in Brazil for this year rose for the 15th straight week, a survey of private economists showed, a trend closely watched by the central bank ahead of an expected rate hike.

The Argentine peso ARS= fell 0.3% and the Merval stock index .MERV lost 2.7%.

Ratings agency Moody's on Friday raised Argentina's long-term foreign currency sovereign credit rating, citing policy changes that have helped address economic and fiscal challenges.

Colombia's main index .COLCAP gained 0.6%, Mexican stocks .MXX were flat, while Brazil's Bovespa .BVSP gained 1.1%.

HIGHLIGHTS

** To weather Trump, emerging market investors look to the frontier

** Rwanda's dollar bond slips after M23 enters Congo's Goma

** Disapproval of Brazil's Lula overtakes approval for first time in this term, poll shows

Key Latin American stock indexes and currencies: