Latam currencies gain on US jobs, ECB

Mexico's peso gained against the US dollar on Friday, and headed toward its biggest one-week gain in more than 2-1/2 years as Europe moves to check a widening debt crisis and the US economy shows new signs of growth. The Mexican peso gained 0.56 percent to 13.5354 per US dollar. Its one-week gain of 5.6 percent is its biggest since May 2009.
Much of the peso's gains on Friday came after the US Labour Department said unemployment in the world's largest economy and Mexico's main trading partner fell to 8.6 percent, a 2-1/2-year low. Other data from the report also showed that the economy was gaining force. A strong US economy is crucial for Mexico, which gets nearly 80 percent of export earnings from its northern neighbour.
Gabriel Casillas, an economist at J.P. Morgan Chase in Mexico City, attributes much of the gain to signals from the European Central Bank that it may act more aggressively to support sovereign bond prices and banks if member countries agree to and implement tighter budget controls. There has also been speculation that while the ECB refuses to be a lender of last resort to governments, it might provide more capital to troubled European economies through the International Monetary Fund.
Friday's peso gains come in the wake of moves by major central banks earlier this week to increase the availability and lower the cost of dollar swaps. The move helped unblock a credit logjam starving European banks of short-term capital. Banks and investors have slashed lending on concern that possible defaults in Greece, Italy or Spain would saddle the financial system with huge losses.
Concern those losses would lead to even less investment and slower growth world-wide has pushed many investors to buy the dollar in favour of Latin American and other emerging market currencies, which are considered higher risk. The peso was also helped this week by the Mexican central bank's decision on Tuesday to buy up to $400 million in pesos on days the currency weakens more than 2 percent.
Brazil's real also gained, firming 0.76 percent to 1.7849 per dollar. For the week, it gained 5.5 percent, its first weekly rise in five weeks. The currency was helped by the central bank's decision to cut the country's benchmark rate to 11 percent on Wednesday as well as moves to boost credit and cut taxes on stocks and some bond investment by foreigners, Woolfolk said.
The central bank maintained the rhythm of 50-basis-point cuts rather than larger cuts, as some expected, calming investor concerns about quickening inflation. The lower taxes on stock investments could attract capital to the stock market, which has lost about a fifth of its value this year, he added. Chile's peso gained 0.17 percent to 514.20 per dollar as prices for copper, the country's main export, rose. Copper for delivery in three months jumped 1.31 percent to $7,889.85 a tonne in London. Colombia's peso firmed 0.29 percent to 1,941.20. Peru's sol was little changed from Thursday, firming 0.04 percent to 2.6970 per dollar and extending 3-1/2-year highs.