Latam FX sapped by firm dollar on virus woes, Mexican peso drops 2.5pc

Mexico's peso hit a six-week low on Wednesday and the Brazilian real extended losses for a fifth straight session against a perky dollar amid renewed fears over the fragile global economy's fate in the face of rising coronavirus cases.

MSCI's index for Latin American currencies dropped about 2.5% after taking a breather on Tuesday from a dire start to the week on concerns over another round of pandemic-related business shutdowns in some European countries.

The dollar gained while equities, including those in Latin America, tumbled after data showing dismal business activity in Europe was followed by a slowdown in business growth in the United States.

A stalemate in US Congress over more fiscal stimulus also weighed.

An emergency approval of one to three COVID-19 vaccines is likely in the coming months, UBS Asset Management predicted on Wednesday, potentially compounding US dollar weakness and helping higher-beta emerging market currencies outperform.

The asset management arm of the Swiss bank said it prefers equity markets outside the US and that Latin American currencies stood out as "particularly attractive".

Focus this week is on Mexico's central bank policy statement on Thursday where the pace of interest rate cuts is expected to slow.

The peso slipped 2.5% to 22.308 against the greenback after Mexico's confirmed coronavirus caseload rose to 705,263 on Tuesday, with a reported death toll of 74,348.

Meanwhile markets are divided over whether the Colombian central bank will continue to trim its benchmark interest rate or halt cuts to stem capital outflows, a Reuters poll showed.

Interest rates are likely to remain low in Brazil, Chile, Colombia, Mexico and Peru, not returning to the previous cycle's high point in the next two years or so regardless of the trajectory of any economic recovery, Moody's Investors Service said.

The Argentine peso logged another all-time low against the dollar amid concerns over economic recovery following the central bank's steps to tighten currency controls and restrict already limited access to dollars last week.

Argentine Economy Minister Martin Guzman stood by the country's newly adopted currency controls in comments made before Congress on Tuesday.

Among individual stocks, Brazilian rent-a-car company Localiza jumped 14% after it agreed to take over rival Unidas for roughly 12 billion reais ($2.18 billion), creating a behemoth that could account for more than 10% of all cars sold in Brazil.

Unidas shares soared over 19%.