Latin American currencies will likely recoup much of their recent losses in coming months, the latest Reuters poll of currency market strategists showed, casting doubt over warnings of a 2013-style tantrum. Forecasts for where the six main Latin American currencies polled by Reuters over the last few days will trade in 12 months barely changed from an April survey.
That was a striking result in the wake of a week-long sell-off that pummeled major currencies to multi-year lows and drove central bankers across the region to action. The Brazilian real is forecast at 3.4 to the dollar, according to the median of 31 estimates, 5 percent stronger than Tuesday's close but only a tick weaker than the previous 3.35 prediction. The median estimate for the Mexican peso remained flat at 18.5 to the dollar.
This suggests recent losses, triggered by concerns that a widening US fiscal deficit and accelerating inflation could force the Federal Reserve to hike interest rates more than expected, may have been exaggerated. Recent losses "owe more to market speculation in bond yields than to Fed policy itself," Infinity Asset Chief Economist Jason Vieira said. "There is of course the question of whether it will increase rates three or four times this year, but any radical tightening seems far-fetched at this point."
His remarks underscore a sanguine attitude among forecasters, most of whom made substantial changes only to their three- and six-month forecasts after the recent sell-off. That would indicate the current market rout will not herald a prolonged period of currency weakness akin to 2013's "taper tantrum," when the Fed began to step back from the monetary stimulus it had introduced to calm the financial crisis.
Still, poll respondents acknowledged currencies exposed to political instability, such as the Argentine peso, could be vulnerable to outflows. Estimates for Argentina's currency, by far the biggest loser in the region and currently trading near all-time lows, were little changed from the previous poll.
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