RIO DE JANEIRO: Latin American currencies mostly ended weaker on Tuesday as enthusiasm for US Federal Reserve Chairman Ben Bernanke's commitment to loose monetary policy eased and fears of Brazil's desire to weaken its currency hurt the real.
Brazil's currency strengthened as much as 0.3 percent early in the session as Bernanke's comments from Monday lifted higher-risk currencies that benefit from low interest rates in the United States.
But the real ended 0.08 percent weaker, bidding 1.8162 per dollar after Brazil's central bank sold 41,200 reverse currency swaps in an auction. The swaps are derivatives that mimic the purchase of dollars in futures markets and are used to prevent the real from strengthening.
Investors are convinced Brazil's government and central bank will do everything they can to keep the currency from appreciating beyond 1.8 per dollar, with some traders saying the bank's target level is now a weaker 1.81 per dollar.
"That's what the traders say and the way the bank is intervening suggests it, though I still believe 1.8 is the level," said 4Cast Analyst Pedro Tuesta.
Some traders said they feared Brazil's government, which has previously raised the tax known as IOF on financial transactions and extended its scope to foreign debt maturing in up to five years, could take additional measures to weaken the real.
"It's hard to think that they'll go beyond what they have in place in a worst-case scenario they might adjust the IOF on derivatives," said Flavia Cattan-Naslausky of RBS.
Other countries are also intervening in their currency markets, determined to deter hot money inflows from the developed world that have been fueled by the very policies Bernanke pledged to continue.
Colombia's peso weakened 0.16 percent to close bidding 1761 per dollar the day after the country's finance minister said the government wants to see more "aggressive" action to help stem currency gains and will ask the central bank to consider stepping up dollar purchases.
Peru's sol ended 0.08 percent stronger at 2.668 per dollar even after the central bank bought $42 million in the spot market in a routine intervention.
Mexico's peso, which had gained the most among Latin American currencies on Bernanke's comments in the previous session, lost 0.3 percent to 12.7082.
Bernanke said on Monday that accommodative monetary policy would stay in place to support demand and that the US economy needed to grow more quickly to reduce the unemployment rate.
Some market participants took that as a sign the Fed could launch another round of asset buying, or quantitative easing, to inject cash into markets that in past years have fled to Latin America's fast-growing economies and high-yielding assets.
But that interpretation was questioned on Tuesday.
"The peso saw losses due to market expectation that the Federal Reserve will not launch more monetary expansion," said Economist Gabriela Siller of Mexico-based Banco Base in a note to clients.
Asked on Tuesday about the potential for a new round of asset purchases by the Fed, Bernanke told ABC News the Fed does not take any options off the table and needs to be prepared to respond however the US economy evolves.
Chile's peso ended nearly unchanged against the dollar, as prices for its main export, copper, were little changed. The peso closed a marginal 0.02 percent firmer, to bid at 486.00 per dollar.