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Markets

Latam FX falls against stronger dollar; sol stabilizes after tumble

  • The dollar rose as investors awaited key US readings this week, which are likely to show an economic recovery gathering steam.
  • Chile's peso fell 0.3%, while Mexico's peso dipped 0.2%. But both currencies are expected to mark strong gains this year, with Chile benefiting from a spike in copper prices, while Mexico is set to benefit from a bounceback in the US economy.
04 May 2021

Colombia's peso hovered around six-month lows on Tuesday as most Latin American currencies dipped against a stronger dollar, while the Peruvian sol appeared to have stabilized after steep losses in the prior session.

The dollar rose as investors awaited key US readings this week, which are likely to show an economic recovery gathering steam.

A wave of COVID-19 infections in Latin America has also kept appetite for local currencies subdued, while concerns over political issues in Colombia and Peru weighed on sentiment.

The Colombian peso, which fell 0.5%, led losses for a second straight day after the government withdrew a proposed tax reform, which was followed by the resignation of finance minister Alberto Carrasquilla.

The government had insisted that the reform was vital to stabilizing Colombian finances as the country grapples with the economic ructions of the COVID-19 pandemic. Analysts also said that not passing the reforms could hurt Colombian economic growth and investment viability.

"Overall, we expect Congress to eventually approved a watered down tax reform bill and with a mix of taxes that is less growth/investment friendly than the original proposal of Minister Carrasquilla," analysts at Goldman Sachs wrote in a note.

Losses in Brazil's real were somewhat constrained, as investors priced in a large interest hike by the Brazilian central bank on Wednesday, amid rising inflation.

Producer prices in March rose at their fastest annual rate since comparable records began seven years ago.

Chile's peso fell 0.3%, while Mexico's peso dipped 0.2%. But both currencies are expected to mark strong gains this year, with Chile benefiting from a spike in copper prices, while Mexico is set to benefit from a bounceback in the US economy.

Peru's sol was the sole gainer for the day, trading marginally higher after tumbling more than 1% on Monday. Concerns over a socialist presidency had pushed the sol to record lows last month, as left-leaning presidential candidate Pedro Castillo was seen leading the polls ahead of a run-off vote in June.

Latam stocks fell in early trade, tracking losses across broader emerging market stocks.