Most Latam FX set for weekly losses as Fed rate cut hopes ebb

BRASILIA: Most Latin American currencies were set for weekly losses on Friday as crumbling expectations for Federal Reserve interest rate cuts propped up the dollar, while Chile’s peso outpaced peers following a smaller local interest rate cut.

Chile’s peso jumped 1.3% following sharp losses in the last two sessions after its central bank cut its benchmark interest rate by 50 basis points to 6.00% in a unanimous decision, saying that it foresees further cuts to the rate but promising to be flexible.

The decision, in line with forecasts in a traders’ poll last week, reflects an easing in the size of rate cuts after a 75-basis point cut in April and a 100-basis point cut in January.

“The magnitude of the cut was in line with consensus expectations, and the presser retained a strictly data-dependent tone,” Barclays strategists said in a note.

“This should support the CLP in the short term if copper stays firm.”

Brazil’s real slipped 0.2% against the dollar, on track for a weekly fall of close to 1%, while Mexico’s peso was flat at 16.72 per dollar, set for its first weekly fall in four.

Colombia’s peso and Peru’s sol shed 0.3% each.

Global risk sentiment soured this week on the prospects of US rates remaining elevated for longer following resilient US economic data and hawkish minutes from the Fed’s last policy meeting.

Most equities in the region rose tracking an upbeat start on Wall Street, with MSCI’s index for Latin American stocks up 0.1%, though set for a near 3% drop this week.