Mexican peso falls on rate cut; Brazil's real lags peers for the week

The Mexican peso led declines among Latin American currencies on Friday after Mexico's central bank cut interest rates for the first time since September, while Brazil's real underperformed its peers for the week amid uncertainty over public accounts.

The peso shed 0.7% against the US dollar, a day after Mexico's central bank cut its benchmark policy rate by 25 basis points to 4%.

Its five board members, who were unanimous on the decision, flagged uncertainty over the economic outlook and global efforts to tackle the COVID-19 pandemic.

"The decision was only relevant as it might presume a clearly more dovish approach on the part of Banxico," said Ulrich Leuchtmann, head of FX and commodity research at Commerzbank.

"The fact that the remaining 'hawks' on the board also agreed to a rate cut had probably not been expected by anyone."

The Brazilian real dropped 0.3%, among the only Latin American currencies set to record losses for the week.

Brazil will extend pandemic emergency cash transfers to the poor and vulnerable, Economy Minister Paulo Guedes said on Thursday, but added that the payments must come with compensating cost-cutting measures to avoid damage to public finances.

Economic activity in Brazil fell 4.05% last year, a central bank index showed, with the economic blow from the COVID-19 pandemic for the year as a whole softened by an eighth consecutive month of growth in December.

Markets were also hopeful that President Joe Biden's planned fiscal package will be passed by lawmakers soon.

The Chilean peso edged higher against the dollar, while Colombia's peso dipped.

Emerging market currencies were subdued on Friday as the dollar index ticked up following lower volumes in Asia due to the Lunar New Year.

Elsewhere in Latin America, data showed oil output from the Vaca Muerta region in Patagonia, which stalled during the coronavirus pandemic, hit a record high in December as producers revved up wells with an eye on rebounding prices and a new export market.

The region holds the world's fourth-largest shale oil reserves.