Latam FX lower, stocks mixed as caution prevails ahead of US tariff deadline

BRASILIA: Most Latin American currencies were dented by a stronger dollar on Friday, and stocks declined, as investors grew risk-averse ahead of the US tariff deadline and a slew of monetary policy decisions next week.

US President Donald Trump said there was a “50-50” chance of a trade deal with the European Union, though European diplomats said a framework deal could happen this weekend.

He also hinted that the Federal Reserve may be ready to cut interest rates, amid repeated calls and persistent criticism of Fed Chair Jerome Powell. The central bank meets next week.

On the day, the uncertainty pushed the dollar index up 0.3%, pressuring most Latam currencies. MSCI’s index tracking these currencies was down 0.2%, but set for its second week of gains.

Currencies in Chile and Colombia were the worst hit, down 0.8% and 0.7% against the dollar. Declining copper prices added to declines in the Chilean peso.

Brazil’s real fell 0.3%. Domestic inflation remained well above the central bank’s target range in mid-July, data showed.

The reading comes ahead of the central bank’s meeting next week, where it is widely expected to hold interest rates at a two-decade high, in a pause to its tightening cycle, where the Selic rate was raised by a cumulative 450 basis points since August.

This week, markets took on more risk after the US signed a trade deal with Japan and signaled that more agreements were in the works, reviving some hopes that the worst tariff impacts could be avoided.

“Markets got excited with the Japanese trade deal because the outcome was slightly better than expected and there was some read through to what that could mean for trade negotiations with Europe,” said Christine Reed, EM portfolio manager at Ninety-One.

“Now people are taking chips off the table ahead of some new tariff negotiations, concerned that this could increase volatility in the market.”

In Argentina, the peso was flat while stocks jumped 2.3%.

Dollar bonds in the country were broadly higher after the International Monetary Fund reached a staff-level agreement on the first review of its extended fund facility with the government, potentially unlocking about.