Latam FX falls as dollar rises, Brazil real lags peers for the week

Most Latin American currencies fell on Friday after the dollar snapped a three-day losing streak, with Brazil's real leading weekly losses among regional peers as worries grew about the state of the country's public finances and fiscal reforms.

The real led declines on the day, falling 1.2% as a lack of clarity about Brazil's state finances and slowing progress of fiscal reforms overshadowed what investors saw as a hawkish move -- the country's central bank removing its "forward guidance" to keep interest rates low.

Analysts believe record-low interest rates should help quicken Brazil's economic recovery, but against the backdrop of rising coronavirus infections and a slower-than-expected pace of vaccinations, the real remains susceptible to corrections.

The currency is set to log a weekly drop of 2%, the most among other Latin American units.

Most emerging market currencies were weaker on Friday against a dollar which rose for the first time in four days as bleak economic data weighed on risk sentiment.

A preliminary survey showed Brazilian industrial confidence fell in January for the first time in nine months, tying in with other recent data that suggest the country's economic recovery is losing steam.

Mexico's peso shed 0.9%, with data showing consumer prices rose in the year through the first half of January, beating expectations. The currency is set to lose 0.7% this week.

"The key point is that inflation remains muted which should pave the way for the central bank to resume its easing cycle," said Nikhil Sanghani, Latin America economist at Capital Economics.

"With concerns about inflation set to ease and the economy struggling due to a second wave of COVID-19 cases, we expect one final 25bp rate cut in this cycle at Banxico's next meeting in February, taking the policy rate to 4.00%."

The Chilean peso fell 0.8%, but was on track to end the week with gains of 1.8%, benefiting from a steady rise in prices of copper, its biggest export.

Colombia's peso fell 1% and was on track to record weekly declines of 1.6% as oil prices retreated further from 11 month highs.

Stocks in the region were lower, with Sao Paulo equities falling the most.

Brazilian reinsurer IRB Brasil RE plunged more than 5% after it said it recorded a net loss of 124.5 million reais ($22.93 million) in the penultimate month of 2020.