Updated April 12th, 2024 at 21:16 IST

Latin American currencies decline amid dollar strength and Fed rate cut speculation

The surge in the dollar was fueled by stronger-than-expected consumer prices data and statements from Federal Reserve officials.

Reported by: Business Desk
Emerging markets | Image:Unsplash
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Latin American currencies decline: Latin American currencies experienced a significant drop on Friday, heading towards their worst weekly performance since October, as the US dollar strengthened following the release of robust inflation data. The MSCI index for Latin American currencies fell by 1.1 per cent, signaling a 1.4 per cent decline for the week.

The surge in the dollar was fueled by stronger-than-expected consumer prices data and statements from Federal Reserve officials indicating a cautious approach towards interest rate cuts. This shift dampened investor interest in riskier emerging market assets.

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Among the hardest hit was Mexico's peso, which depreciated by 1.6 per cent against the dollar. Despite briefly reaching its highest level since 2015 earlier in the week, the peso retreated and is on track for its worst weekly performance this year.

Rachel Ziemba, founder at Ziemba Insights, commented on the situation, stating, "This is partly just a reflection of the fact that Latin American central banks have had a bit more space to ease and some of this modest weakness we've seen this week is a bit of a reversal of the incredible strength."

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Peru's sol, however, managed to strengthen slightly after the country's central bank cut the benchmark interest rate to 6 per cent on Thursday, marking a return to monetary easing after a pause last month.

In Argentina, investors awaited inflation data expected to show a decline in the pace of consumer price increases for the third consecutive month. The country is grappling with annual inflation exceeding 275 per cent, leading the central bank to cut its benchmark interest rate to 70 per cent on Thursday.

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Brazil's real depreciated by 0.9 per cent against the dollar, marking its sixth consecutive week of decline. Data showing a 0.9 per cent fall in the country's services sector in February further contributed to the currency's weakness.

The Colombian peso also fell by 1.2 per cent against the dollar, while Colombia's inflation rate is expected to decline gradually, reaching the central bank's target by mid-2025, according to bank board member Olga Lucia Acosta.

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In Asia, the central banks of Singapore and South Korea opted to maintain their monetary policy unchanged earlier in the day.

(with Reuters inputs)

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Published April 12th, 2024 at 21:16 IST