Russian rouble gives up gains; Brazil's real skids 1pc to lead Latam FX lower

Russia's rouble gave up session gains on Friday after the central bank left the door open to more interest rate cuts, while in Latin America, currencies failed to capitalize on the dollar's weakness as virus fears kept sentiment subdued.

The rouble hit session lows, giving up gains of as much as 0.5%, after the central bank held rates at 4.25%, as expected, but indicated a rate cut was still possible later this year.

Lower rates support the economy through cheaper lending but can also increase inflation, the central bank's main remit, and make the rouble more vulnerable to external shocks.

"Uncertainties with (the government's 2021-23) budget and foreign policy may extend the pause (in rates cuts) till December," said Dmitry Dolgin, chief economist, Russia at ING.

"In a longer run, we continue to believe in further scope for the key rate cut, as the Russian real key rate has reached the central bank's threshold between loose and neutral monetary policy... A return to the neutral monetary policy... at this point appears as a prospect for periods beyond 2021."

Globally, sentiment remained fragile amid disappointment over lack of new stimulus from major central banks and fears of a resurgence in COVID-19 cases.

Latin America, the region worst-hit by the pandemic, saw its currencies slide against a weaker greenback, with a 1% fall in Brazil's real leading losses.

The Peruvian sol snapped a four-session winning streak as President Martin Vizcarra faces an impeachment hearing after the country's constitutional court on Thursday rejected his appeal to delay congressional efforts to remove him from his post.

In Argentina, the peso was flat. The International Monetary Fund said it is evaluating Argentina's federal budget proposal and enhanced foreign exchange controls as part of its discussions over a new program for the South American country to update a $57 billion agreement struck two years ago.

Mexico's peso hit fresh six-month highs, but soon lost traction, last down 0.3%, while Colombia's peso extended loses to a fourth day running.

Among stocks, a financials and energy drag weighed on Brazil's Bovespa, while Mexico's Ipc index rose as much as 0.4%.

But on the week, MSCI's index of Latam shares as well as currencies are set to end higher as vaccine hopes and some upbeat data from China and the United States had lifted sentiment.