Colombian peso slides after rate cut; Strong dollar pressures other Latam FX

A strong dollar pressured most Latin American currencies on Friday, with Colombia's peso leading losses after the country's central bank cut interest rates to a historic low.

The bank trimmed the rate by 25 basis points to 1.75%. The market was split on whether the bank would pause after cutting the rate by a total of 225 basis points over the last six months, or continue the easing cycle.

The peso lost 1.6%, declining for the eighth session in nine, and pushing weekly losses to 4% - its worst in more than three months.

Other Latam currencies weakened as investors fled to the dollar at the end of a turbulent week marred by rising risks to the global economic recovery and political uncertainty tied to the Nov. 3 US presidential election.

An impasse in the US Congress over another relief package to battle the economic fallout of the coronavirus crisis also weighed.

Brazil's real dropped 0.7%, as did Mexico's peso weighed additionally by lower oil prices. On the week, the peso lost around 5.5% - its worst in nearly six months.

"Brazil seems better positioned than Mexico for the recovery in labor markets," Morgan Stanley economists wrote in a note, adding that soft forward-looking indicators continue to point to Brazil's economy outperforming in the future.

Data on Friday showed Mexico's economy grew 5.7% in July from June.

MSCI's index of developing world stocks and currencies were on pace for their biggest weekly slump since the coronavirus-led crash in March.

The battered Argentine peso weakened further after hitting a series of record lows. FTSE Russell downgraded Argentina's stock market to "unclassified" from "frontier market" as the country tightened access to foreign currency.

Argentine companies are also facing an increasingly difficult task to keep up with payments on dollar-denominated debt, hiking the risk of a wave of corporate defaults amid capital controls.

Buenos Aires' Merval index lost as much as 1% before trading flat, but ended the week slightly higher.

Chile's peso retreated, tracking a drop in the price of copper, the country's top export.

Stocks in Chile and Mexico provided a bright spot, while those in Brazil and Colombia dropped.