Latam FX muted as investors look ahead to ECB, Fed

Latin American currencies largely held steady on Monday as investors awaited policy decisions in the coming weeks from the European Central Bank and the US Federal Reserve for clues on the path of interest rates.

Also helping risk sentiment was a South China Morning Post report that US trade negotiators might visit China next week for their first in-person talks with Beijing officials since the G20 meeting late last month where US President Donald Trump held off imposing new tariffs on Chinese goods.

Hopes of major central banks embracing looser monetary policy to counter a global slowdown have encouraged inflows so far this year into higher-risk, emerging markets.

Traders see about a 46% probability that European policymakers will lower a key deposit rate by 10 basis points at a meeting this week.

The Fed is set to meet next week, with investors pricing in a rate cut of 25 basis points, although expectations for a cut of as much as 50 basis points have been dampened amid stabilizing economic data.

Brazil's real climbed 0.2% while Sao Paulo-traded stocks moved 0.4% higher aided by gains in financial companies.

But heavyweight iron ore miner Vale dropped more than 1% after it said its second-quarter iron ore production tumbled almost 34% from a year ago as many of its dams remained all or partially shut down following a deadly dam burst in January.

The Brazilian government announced an additional 1.443 billion reais ($386 million) freeze on spending, although was below the 2.5 billion reais estimate from President Jair Bolsonaro over the weekend, as the government will cover part of its shortfall with 809 million reais from a reserve fund.

Mexican stocks along with the peso slid amid concerns about debt-laden state oil company Pemex after ratings agency Standard & Poor's said it could accelerate its annual review of Mexico's sovereign bonds and Pemex if the economy enters a recession and growth estimates fall for 2020.

"Recent comments by S&P imply a high risk of a downgrade on the manifestation of a technical recession, likely still in Q3 (from BBB+ to BBB for the sovereign and Pemex)," ING analyst Gustavo Rangel wrote in a research note.

"We expect a more consequential downgrade by Moody's later in the year on further evidence for a weaker medium-term growth outlook, exacerbated by risks for the fiscal outlook, which would see Pemex losing investment-grade status."