Brazil's real recovers on rate hike hopes as inflation surges

Brazil's real currency rose on Thursday after tumbling in the previous session on rising political tensions, while falling oil prices saw Colombia's peso extend its losses to a fourth straight session.

Brazil's real rallied 1% as data showing inflation surged more than expected strengthened the case for a 100-basis-point interest rate hike later this month.

In the wake of the release of the inflation data, Roberto Campos Neto, the president of Brazil's central bank, said it would use the tools at its disposal to bring inflation under control.

The Brazilian currency lost nearly 3% on Wednesday following President Jair Bolsonaro's verbal attack on the Supreme Court and questioning of election integrity, as his supporters rallied ahead of elections next year and trucker protests disrupted export routes.

Ulrich Leuchtmann, Commerzbank's head of FX research, said a row between Bolsonaro and the court could paralyze the political system and make economic policies more difficult to implement.

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Political tensions have seen the real erase its yearly gains to trade about 1.5% lower for the year. Stocks on Brazil's Bovespa equity index rose 0.2% on Thursday on largely broad-based gains after tumbling nearly 4% in the last session.

A weaker dollar, which was dented by data showing new US weekly jobless claims fell to near an 18-month low, also helped emerging market currencies, with Russia's rouble rising 0.8% and looking to post its best session in two weeks ahead of the Russian central bank's policy meeting on Friday.

Mexico's peso was flat after inflation cooled in August to 5.60%, but remained well above the official target of 3%, keeping alive the possibility of an interest rate hike this month.

On Wednesday, Mexico's government proposed sharply reducing the tax burden for state oil firm Pemex, and forecast economic growth of 4.1% for 2022 in its draft budget.

Colombia's peso lost 0.4% as oil prices fell, while Chile's currency which has been hampered by recent drops in the price of copper, hit three-week lows.

Among stocks, Argentina's Merval inched closer to record highs, while most other regional equity indexes slipped between 0.2% and 0.4%.