EMERGING MARKETS-LatAm currencies fall despite Fed rate cut; eyes on Brazil's rate decision

By Pranav Kashyap

Sept 17 (Reuters) - Most Latin American currencies faced pressure on Wednesday as the dollar firmed despite a quarter-point interest rate cut by the U.S. Federal Reserve, with investor attention shifting to an upcoming policy decision from Brazil.

An index tracking currencies .MILA00000CUS pared early gains and was last up 0.09%, though it traded around record levels.

The Fed's widely anticipated decision to cut rates was accompanied by projections for steady reductions throughout the year, reflecting concerns over labor-market weakness.

The decision was nearly unanimous, with only Stephen Miran dissenting after joining the Fed on Tuesday.

The rate cut marks a resumption of the policy easing cycle, which had been on pause since December 2024.

The dollar =USD rebounded from its lowest since February 2022, climbing 0.23%.

"In terms of guidance, there's really nothing that clear at the moment, and that's why you're not seeing the dollar go one way or the other in a heavy way," said Juan Perez, director of trading at Monex.

The Brazilian real BRL= eased from a one-year high and struggled to find direction as investors awaited the central bank's interest rate decision later in the day.

Brazil's central bank is expected to hold rates steady at 1730 ET, maintaining borrowing costs at a near two-decade high of 15%. However, the decision comes at a critical juncture, with the elevated rate beginning to weigh on economic growth.

A "hold" verdict would widen the yield gap between Brazil and the United States following the Fed's latest rate cut, potentially attracting carry trades and capital inflows into Brazilian assets, which could lend support to the real. The currency has gained 14.3% so far this year.

"There's a central bank policy divergence between regions; it seems like the United States Federal Reserve is willing to admit that there are some worrisome indicators across labor," Perez added.

Brazil benchmark stock index .BVSP soared to another record peak, up 1%, lifted by energy stocks. Mexican stocks .MXX resumed trading on Wednesday following the Independence Day holiday and slipped 0.81%, retreating from record highs.

A broader index for regional equities .MILA00000PUS trimmed early gains, last up 0.5%.

The Mexican peso MXN= eased 0.1% and could snap an eight-day winning streak, its longest since March 2024.

The country has launched public consultations on the United States-Mexico-Canada (USMCA) trade pact to gather feedback on its performance ahead of a scheduled review in 2026.

In Argentina, the central bank sold U.S. dollars on Wednesday after the peso currency weakened past the floor of its trading band, traders said.

The local peso ARS=RASL was last down 0.2% to trade at a record low and also registered its eleventh consecutive session of losses.

The currency, down 43% year-to-date, has faced intense selling pressure following President Javier Milei's decisive defeat in recent provincial elections, raising doubts about his chances in the October midterms and his ability to push forward his economic policy agenda.

Argentina's gross domestic product grew 6.3% in the second quarter compared to the same period last year, reflecting the country's economic recovery under President Milei 's sweeping austerity measures, which include spending cuts, deregulation, and privatization.

However, Argentine stocks .MERV remained steady for the day.

Chilean stocks .SPIPSA fell 0.65% on Wednesday, pressured by declining copper prices, but remained up 34% year-to-date, nearly triple the S&P 500's .SPX gain over the same period.

Elsewhere, the Colombian peso COP= fell 0.4%, retreating from a more than one-year high reached on Tuesday, while stocks .COLCAP edged down 0.3%.

Key Latin American stock indexes and currencies: