Mexican peso break losing streak, cenbank cuts rates

Latin American stocks gained on Thursday and currencies reversed early losses, with an expected interest rate cut by Mexico's central bank not hindering the peso's gains.

The peso broke a four-session losing streak to rise 1.2% as the dollar lost traction against major rivals.

Bank of Mexico cut the key benchmark rate by 25 basis points to 4.25%, in a unanimous decision, citing an environment of uncertainty and downside risks. This comes after a series of half percentage point cuts in recent months to support an economy hammered by the coronavirus pandemic.

"We believe that Banxico is signaling the capacity and willingness to ease further, but is introducing greater importance in the stability of the peso, which is now going to play a strong role in future policy decisions," said Sacha Tihanyi, deputy head of EM strategy at TD Securities.

"We retain our view that Banxico will ease by two more 25bp cuts before ending the easing cycle, though also acknowledge the risk skew that we only see one more 25bp cut, or no further easing should there be a sustained and rapid strengthening of the USD."

Brazil's real jumped 1.3%. The country's central bank lifted its 2020 GDP forecast to minus 5.0% from minus 6.4%, saying the country's COVID-19 crisis entered a less acute phase in the third quarter.

The Argentine peso fell to a record low of 147 per dollar on the black market as the beleaguered currency reeled from the impact of capital controls. Data late on Wednesday showed Argentina's unemployment rate jumped to 13.1% in the second quarter, the highest since 2004.

Tracking a rise on Wall Street, most stock indexes in Latin America climbed, shaking off weakness from earlier this week. Chile's IPSA looked to post its best day in over three weeks, while main indexes in Brazil and Mexico gained about 1.4% each.

But rising COVID-19 cases in the region and indications that a global economic recovery may be slowing, kept sentiment fragile.

"What we've witnessed over the last few weeks as the third quarter comes to an end is that fourth quarter is going to be quite challenging for emerging markets," said Piotr Matys, emerging markets forex strategist at Rabobank.

"One of the key reasons is an increase in political uncertainty before the US elections."