Brazil's real slides over 1pc; oil weighs on Colombian peso
- The real fell 1.3% too 5.629 per dollar after gaining 2.5% last week. On the year, the currency is one of the worst-performing among emerging market peers, down nearly 8% compared with a 0.6% slip in the broader EM index .
- "The currency is over 20% cheap in real effective exchange rate terms," said JPMorgan strategists in a note.
Brazil's real underperformed broader emerging market peers on Monday, after its best week in more than three months, with eyes on a central bank meeting where surging inflation is expected to force a rate hike.
The real fell 1.3% too 5.629 per dollar after gaining 2.5% last week. On the year, the currency is one of the worst-performing among emerging market peers, down nearly 8% compared with a 0.6% slip in the broader EM index .
Brazil's expected inflation for 2021 shot up to a new high of 4.6%, a central bank survey showed, significantly above the bank's year-end target of 3.75%. Rising inflation, deepening fiscal uncertainty and a weak exchange rate could see a 50 basis point increase in interest rates on Wednesday, a Reuters poll showed.
The hike would be the first in six years.
"The currency is over 20% cheap in real effective exchange rate terms," said JPMorgan strategists in a note.
"We do not see the prospects for BRL to fully close this valuation gap in the foreseeable future given our JPM house view for further moderate dollar strength to year end coupled with further fiscal risks in the pipeline ahead of what will be a very contentious Presidential election in Brazil next year."
The bank sold 10,000 foreign exchange swaps contracts at auction on Monday, continuing its intervention to support the currency.
Meanwhile, Brazilian President Jair Bolsonaro is weighing candidates to replace Health Minister Eduardo Pazuello, sources said, in what would be the fourth person in a year in the role as COVID-19 cases rage out of control.
As the dollar strengthened, EM currencies trimmed gains, with some moving into the red.
Mexico's peso inched higher, while copper producer Chile's peso tracked prices of the red metal higher. The Chilean peso is among the best performing Latam currency year-to-date thanks to copper prices hitting decade highs.
Colombia's peso extended losses to a third straight session as crude prices declined.
Focus this week will be on the US Federal Reserve's rate decision on Wednesday as well as the first meeting between Washington and Beijing since US President Joe Biden took office.
Latam stocks rallied, with Argentine shares in the lead, up 1.5% to hit over two-week highs.
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