Mexico's peso weakened while Brazil's real strengthened slightly on Friday as mixed US economic data and more rescue funds for Europe were not enough to sustain a rally at the quarter's end. Latin America's local currency markets gained early in the session after euro zone finance ministers agreed to make an additional 500 billion euros ($665.85 billion) available to the debt-laden countries in the bloc.
But investors later turned cautious after data from the United States showed the pace of business activity in the Midwest slowed more than expected, even as nation-wide consumer spending increased by the most in seven months in March. The Mexican peso eased 0.18 percent to 12.8224 per US dollar while the Brazilian real strengthened 0.16 percent to 1.8228.
Mexico's markets are particularly sensitive to US manufacturing data since many Mexicans work in US factories. The United States is also the country's top trade partner. "Income and spending numbers somewhat offset each other, the Chicago Purchasing Manager's Index was a bit worse than expected," said Eduardo Suarez, currency strategist at Scotia Capital.
"The euro firewall was a bit smaller than some people yesterday had suggested," he added. However, the region's benchmark currencies remain on track to post strong gains for the first quarter of the year. The real has gained 2.2 percent since January 1, while Mexico's peso was headed for its best quarter since at least 2000, up 8 percent in the year to date.
"Mexico has benefited a lot from a rebound in the US economy - it's a very easy economy to access for foreigners," Suarez said. "Yields are very attractive." The real has been underperforming the region's currencies this year as policymakers in Brazil have taken measures to weaken the unit in an effort to protect domestic manufacturers.
Brazil's government has raised a tax on financial transactions, known as the "IOF," and recently extended its scope to include foreign debt maturing in up to five years. Traders dumped the real earlier this week on fears the government was preparing to extend the IOF tax to all financial transactions, but the currency recovered a bit as those concerns faded.
"It's a little bit aggressive to extend the IOF tax to all capital inflows, most likely the government is not going to go that direction - unless the real continues to appreciate toward 1.7," said Goldman Sachs economist Alberto Ramos. The government "would like to see the real closer to 2 (per dollar) for competitiveness, but I think they understand that the implication from that for inflation and interest rates would be going in a direction they don't like," he added. Chile's peso gained 0.18 percent to bid 488.3 per dollar after closing at a three-week-low on Thursday. The currency rebounded as the price of its main export copper firmed. It has gained some 6 percent this quarter.