LatAm FX caps a banner 2025, buoyed by yield hunt and diversification

BRASILIA: Latin American currencies firmed in thin year-end trading on Wednesday, putting the finishing touches on a banner 2025 as investors piled into higher-yielding bets amid expectations of a softer dollar and a renewed push for diversification.

MSCI’s gauge of regional currencies rose 0.11 percent and was on track to close out 2025 up nearly 26.6 percent, its best annual run since at least 2009.

The rally drew strong support from the carry trade this year, with investors borrowing in low-rate currencies and rotating into higher-yielding markets across the region. That tailwind could extend into 2026 if the Federal Reserve begins cutting rates, a shift that typically pressures the US dollar.

Still, the upbeat tone faces potential speed bumps -

uncertainty over US trade and a crowded election calendar that could quickly put risk appetite to the test.

“LatAm economic and market outcomes for 2026 hinge on the lead-up to, and results of, elections in the region, with Brazil’s October 2026 vote serving as the most important,” economists at Scotiabank wrote in a note.

While most regional equity markets were shut on Wednesday, the MSCI index tracking regional stocks climbed 46.4 percent in 2025, logging its best annual performance since 2009. The best regional performers included equities in Chile , which earlier this month elected Jose Antonio Kast as its president. The stock benchmark gained 56.2 percent this year, and optimism around Kast spurred a late-year rally. The local peso gained 9.4 percent this year.