Latam FX falls, energy reform fears trip up Mexico’s peso


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Latin American currencies came under

pressure from a spike in U.S. inflation on Tuesday as investors

feared monetary policy tightening by the Federal Reserve, while

Mexico’s peso tumbled on concerns over more government

interference in the energy sector.

MSCI’s index of Latin American currencies

fell 0.1% in early trade after data showed U.S. consumer prices

shot up at their highest rate in 13 years in June. The dollar

and Treasury yields both rose after the data.

A sustained spike in inflation could push prices above the

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Fed’s target inflation range, and compel the U.S. central bank

to tighten policy earlier than anticipated.

“It came in very hot, much hotter, so it is going to be

difficult for the Fed or any of the talking heads to try to talk

it away as transitory … it is significantly stronger, and that

plays right into the ongoing inflationary concerns,” said Ken

Polcari, managing partner at Kace Capital Advisors.

Mexico’s peso led the losses across Latin America,

sinking as much as 1% and eyeing its worst day in nearly a

month.

Mexican President Andres Manuel Lopez Obrador said he plans

to send a constitutional reform to Congress to protect

public-sector interests over private companies in the

electricity market.

Lopez Obrador’s stance on the country’s energy market has

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been widely opposed by independent power firms and investors on

the grounds that it would hurt competition.

Recent volatility in the oil market also weighed on the

peso. The International Energy Agency warned that while the oil

market could see tighter supply due to an OPEC+ dispute, there

remains a risk of a dash for market share.

Brazil’s real fell 0.2%, now on track to lose ground

in nine of the past 10 sessions as corruption scandals in Latin

America’s largest economy sapped appetite for the currency.

Waning iron ore imports in China, the largest exporter of

the steelmaking ingredient from Brazil, could also hurt the real

this year.

But economic growth in Brazil has been wholly positive this

year, as more of the country emerges from COVID-19 lockdowns.

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Data on Tuesday showed services activity in Brazil grew

23.0% in May from last year.

In an update to Argentina’s debt woes, the International

Monetary Fund said progress was being made in talks over the

roughly $45 billion owed to the Fund.

Broader emerging market currencies also retreated after the

U.S. inflation data, with MSCI’s index falling

0.1%.

Latin American stocks fell in early trade,

tracking losses on Wall Street.

Key Latin American stock indexes and currencies:

Latest Daily % change

MSCI Emerging Markets 1338.11 0.85

MSCI LatAm 2556.97 0.01

Brazil Bovespa 127194.78 -0.31

Mexico IPC 49890.80 0.2

Chile IPSA 4209.63 -0.79

Argentina MerVal – –

Colombia COLCAP 1297.41 -0.08

Currencies Latest Daily % change

Brazil real 5.1829 -0.19

Mexico peso 19.9908 -0.73

Chile peso 744.28 -0.15

Colombia peso 3821.51 -0.09

Peru sol 3.9605 -0.17

Argentina peso 96.1200 -0.02

(interbank)

(Reporting by Ambar Warrick

Editing by Paul Simao)

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