MEXICO CITY/SAO PAULO: Brazil's real surged on Thursday on bets Brazilian policymakers would allow more currency gains in order to offset inflation pressures, with some eyeing room for a jump further to 1.50 per dollar.
The real had its biggest jump since June 2010 as it rose to its strongest against the dollar since August 2008.
Brazil announced a minor tax increase on foreign borrowing on Wednesday to try to halt the real's appreciation, but the measure was far less drastic than many had feared.
Brazil has tried a variety of measures to slow the real's gains, with limited success. More severe capital controls could push investors out of Brazil, while further currency strength could help contain the impact of rising commodity prices.
"The government appears to have decided to allow the currency to appreciate a bit more and see how beneficial for inflation expectations it could actually be," said Marcelo Salomon, chief economist for Brazil at Barclays Capital in New York.
Data showed consumer prices in Brazil rose more expected in March, pushing the annual inflation rate near the top of a government ceiling.
The real bid nearly 1.9 percent stronger to 1.582 per dollar.
Finance Minister Guido Mantega announced another press conference at 6:30 p.m. local time (2130 GMT) on Thursday, raising some concerns further measures could be introduced.
TARGETING 1.50
Miriam Tavares, currency director at brokerage AGK Corretora in Sao Paulo, said the real would likely trade between 1.55 and 1.60 per dollar in the coming session.
Analysts at RBS Securities and Barclays Capital both see the real firming to as strong as 1.50 per dollar.
Low interest rates in major developed economies like the United States and Japan will keep up the allure of Brazil's double-digit debt yields, while higher prices for commodities, like Brazil's key exports of soybeans and iron, will further back Latin American currencies, analysts said.
"You see commodity prices moving up, and you will see more flows into Brazil," Salomon added.
Still, a widening current account deficit and expectations the US central bank will eventually start to withdraw liquidity could cause Brazil's real to weaken slightly over the next year, a Reuters poll showed.
Mexico's peso managed to stake out a 2-1/2 year intraday high, at 11.7615 per dollar, before paring back. The currency is supported by expectations an improving US economy will boost demand for local exports.
Mexico sends around 80 percent of its exports to its northern neighbor. While Mexico is expected to keep interest rates on hold for at least most of this year, investors are still drawn to yields that are higher than in developed markets.
The Mexican peso firmed 0.21 percent to 11.7750 per dollar.
Chile's peso bid 0.38 percent firmer at 471.90 per dollar, its strongest in six weeks, supported by a rebound in prices for copper, the country's main export.
Also backing bets for an aggressive interest rate hike this month, the central bank's president said on Thursday that Chile's economy will grow close to its full capacity this year.
Peru's sol bid up 0.43 percent to 2.8010 per US dollar on Thursday on news that a poll showed right-wing populist Keiko Fujimori would face left-wing nationalist Ollanta Humala in a June 5 run-off.
The first-round vote will be held on Sunday. The sol has weakened in recent weeks on worries about a Humala victory.
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