Historic fall in Mexico's Q2 GDP weighs on peso

Mexico's peso retreated from one-month highs on Wednesday after Latin America's second-largest economy posted its sharpest contraction ever, while other regional currencies also weakened as the dollar firmed.

The peso fell as much as 0.3% after data showed GDP fell 17.1% in April to June, from the previous three-month period in seasonally adjusted terms, as the coronavirus pandemic hammered the economy.

In annual terms, the economy contracted 18.7% in the second quarter compared to a year earlier. But monthly data showed an improvement in June from May.

Ahead of a speech by US Federal Reserve Chairman Jerome Powell at the annual Jackson Hole conference on Thursday, the greenback made cautious gains. Investors are watching for possible new steps to prop up the US economy.

"Hints of further easing or some urgency in the tone of Fed's dovish commitment can help underpin the dollar's softness but the lack of clarity could drag it higher especially when dollar short positioning is near record high," said FX analysts at Maybank.

Despite higher copper prices, top producer Chile's peso fell 0.1% after Moody's cut the country's outlook to negative citing a rising debt-to-GDP ratio which poses a "key credit concern".

It added that the economic drag from the pandemic as well as unrest over social inequality could pressure Chile's commitment to fiscal prudence. Fitch and Standard & Poor's downgraded Chile's outlook to negative in March and April, respectively.

Brazil's real fell 0.3% after posting its best session in two weeks on Tuesday, while declining oil prices saw crude exporter Colombia's peso extend losses to a fifth straight session to stay near lows not seen since mid-May.

In Peru, the Congress approved a law on Tuesday that allows citizens to partially draw down their contributions to the state pension fund, despite strong opposition from the government.

The sol currency had hit all-time lows last session.

The approval allows Social Security Office (ONP) affiliates to withdraw up to $4,300 ($1,200) to mitigate the financial impact of the coronavirus pandemic. Presidency sources say the measure could cost the government coffers up to 13.280 billion soles.