EMERGING MARKETS-LatAm FX hit record against weaker dollar as Fed rate cut bets firm

By Twesha Dikshit

Dec 3 (Reuters) - Latin American currencies hit a record high on Wednesday against a softer dollar, while equities also advanced on growing expectations of a U.S. Federal Reserve rate cut next week, with regional developments remaining in focus.

MSCI's index for Latin American currencies .MILA00000CUS rose 0.41% to a record high, while the dollar index =USD fell 0.45% as weaker-than-expected U.S. jobs data and expectations of further rate cuts weighed on the greenback.

News that U.S. President Donald Trump's administration had abruptly canceled interviews with finalists for the Fed chair job raised expectations that economic adviser Kevin Hassett would replace Jerome Powell when his term as chair ends in May next year. The expectations of a dovish tilt led to a bout of dollar selling that benefited EM currencies.

"To us, it's not a huge mystery that risk-taking has firmed in the past few days. Even though the U.S. and global data have been lackluster, it has only strengthened traders' belief that the Fed will act on December 10 to reduce its fed funds target rate by 0.25%," Macquarie analysts said in a note.

EM assets have outperformed most global peers this year with a weaker dollar, cheaper equity valuations, and asset diversification playing a favorable role in their rise.

The gap between developing nations' debt servicing costs and new financing hit a more than 50-year high of $741 billion between 2022 and 2024, the World Bank said.

The MSCI index tracking regional stocks .MILA00000PUS added 0.27% to hover near a six-year high, mirroring upbeat sentiment in global equities.

BRAZIL, MEXICO UPDATES IN FOCUS

Brazilian President Luiz Inacio Lula da Silva said he expects further U.S. tariff cuts following a phone call between the two nations' leaders on Tuesday.

The real BRL= firmed 0.3% against the greenback, while equities .BVSP rose 0.3% to a new high, a day after the index surpassed 160,000 points for the first time. A survey showed Brazil's services sector returned to growth in November after seven months of contraction.

With GDP data expected on Thursday, economic growth was forecast to have expanded modestly in the third quarter, according to most economists polled by Reuters.

Brazilian miner Vale VALE3.SA rose 3.5%. The company on Tuesday said its base metals unit is in talks with Glencore GLEN.L to form a copper joint venture in Canada.

Mexico's government said it would raise the minimum wage by 13% in 2026, the latest public policy from the second consecutive leftist government aimed at helping poor workers.

The peso MXN= was little changed, while stocks .MXX dipped 0.33%. Data showed gross fixed investment fell 0.3% in September from the previous month, below the forecast.

Chilean equities .SPIPSA added 0.3% while the peso CLP= strengthened 0.43%, boosted by higher copper prices, ahead of the Andean nation's presidential runoff in mid-December.

Chile's divided Congress will limit the agenda of either presidential candidate who comes out on top after the December 14 runoff, supporting the country's sovereign credit quality, Moody's said.

Argentina's S&P Merval .MERV rose 2.7%, while the peso ARS= added 0.24%.

The Colombian peso COP= jumped 1.57% against the dollar while the MSCI COLCAP Index .COLCAP slipped 0.7%. The equity index has outperformed most peers this year, but the rally could face some setbacks in the run-up to the 2026 presidential election.

Meanwhile, Poland's central bank delivered an interest rate cut as widely expected, bringing the rate down by 25 bps to 4% following benign inflation data.

The zloty EURPLN= added 0.1% while the WIG20 Index .WIG20 dropped 0.73%.

Romanian stocks .BETI gained 1.15%. The country said its military blew up a maritime drone that was endangering navigation in the Black Sea.

Key Latin American stock indexes and currencies: