MEXICO CITY/SAO PAULO, June 8 (Reuters) - Major Latin American currencies weakened on Wednesday as concerns about slowing U.S. growth and slim chances for further stimulus in the United States pushed investors to dump riskier assets.
Federal Reserve Chairman Ben Bernanke said late Tuesday the U.S. recovery remained fragile. Bernanke's comments followed a spate of economic data pointing to a slowdown in the world's biggest economy.
"So many different economic metrics point to weakness on a global scale, that there is a run back toward security," said Enrique Alvarez, head of Latin America research at IDEAglobal in New York.
The Brazilian real BRBY bid 0.25 percent weaker at 1.58 per dollar. The currency opened weaker on the first trading day after President Dilma Rousseff's chief of staff resigned in a political scandal over his personal wealth.
Analysts said that in the long term, the resignation of Antonio Palocci could erode Rousseff's ability to push through key economic reforms, but they said the real's weakness was mostly due to the signs of slowing global growth.
"Palocci will have an effect more in the early part of the day, but things were already falling," said Julio Hegedus, chief economist with InterBolsa in Sao Paulo.
Analysts noted the dash for safe-haven assets drove the yen below 80 per dollar, which pushed some investors out of "carry trade" bets in favor of Latin American currencies.
In the carry trade, investors borrow money in lower-yielding currencies to buy currencies where interest rates are higher.
Ultra-low U.S. and Japanese rates have helped push a tide of investment into Latin America during the recovery from the financial crisis.
Investors are also concerned about the impact on markets of the winding down of the Fed's bond buying program at the end of June. Bernanke offered no hint the U.S. central bank is considering any more stimulus to boost growth.
"Many speculators had placed some chips on the idea that there might be some sign of additional support for the market, and Bernanke did not make any such suggestions and I think that disappointment factors in," Alvarez said.
Mexico's peso MXN=MXN=D2 bid 0.22 percent weaker to 11.8055 per dollar. The currency hit its weakest since April 13 earlier in the session.
Technical analysts at Citigroup noted the 11.80 level was a key resistance level and a close above that level could suggest the cost of dollars in pesos will rise further and may target its 200-day moving average around 12.14 per dollar.
Mexico sends around 80 percent of its exports to the United States and is the most exposed economy in Latin America to a slowdown in U.S. growth.
Brazil is expected to raise its benchmark interest rate by 25 basis points to 12.25 percent later on Wednesday.
High interest rates in Latin America should help provide a floor for currency losses. Slower U.S. growth suggests the Fed could keep U.S. interest rates down for longer than expected, which will tempt investors to snap up higher-yielding Latin American debt.
Chile's peso CLP=CL bid down 0.21 percent to 467.30 per dollar.
Inflation data in Chile quickened to 0.4 percent in May, more than market expectations for a 0.3 percent increase but not enough to change bets that the central bank will moderate its pace of recent interest rate hikes at a policy meeting next week.
Source: www.reuters.com
Federal Reserve Chairman Ben Bernanke said late Tuesday the U.S. recovery remained fragile. Bernanke's comments followed a spate of economic data pointing to a slowdown in the world's biggest economy.
"So many different economic metrics point to weakness on a global scale, that there is a run back toward security," said Enrique Alvarez, head of Latin America research at IDEAglobal in New York.
The Brazilian real BRBY bid 0.25 percent weaker at 1.58 per dollar. The currency opened weaker on the first trading day after President Dilma Rousseff's chief of staff resigned in a political scandal over his personal wealth.
Analysts said that in the long term, the resignation of Antonio Palocci could erode Rousseff's ability to push through key economic reforms, but they said the real's weakness was mostly due to the signs of slowing global growth.
"Palocci will have an effect more in the early part of the day, but things were already falling," said Julio Hegedus, chief economist with InterBolsa in Sao Paulo.
Analysts noted the dash for safe-haven assets drove the yen below 80 per dollar, which pushed some investors out of "carry trade" bets in favor of Latin American currencies.
In the carry trade, investors borrow money in lower-yielding currencies to buy currencies where interest rates are higher.
Ultra-low U.S. and Japanese rates have helped push a tide of investment into Latin America during the recovery from the financial crisis.
Investors are also concerned about the impact on markets of the winding down of the Fed's bond buying program at the end of June. Bernanke offered no hint the U.S. central bank is considering any more stimulus to boost growth.
"Many speculators had placed some chips on the idea that there might be some sign of additional support for the market, and Bernanke did not make any such suggestions and I think that disappointment factors in," Alvarez said.
Mexico's peso MXN=MXN=D2 bid 0.22 percent weaker to 11.8055 per dollar. The currency hit its weakest since April 13 earlier in the session.
Technical analysts at Citigroup noted the 11.80 level was a key resistance level and a close above that level could suggest the cost of dollars in pesos will rise further and may target its 200-day moving average around 12.14 per dollar.
Mexico sends around 80 percent of its exports to the United States and is the most exposed economy in Latin America to a slowdown in U.S. growth.
Brazil is expected to raise its benchmark interest rate by 25 basis points to 12.25 percent later on Wednesday.
High interest rates in Latin America should help provide a floor for currency losses. Slower U.S. growth suggests the Fed could keep U.S. interest rates down for longer than expected, which will tempt investors to snap up higher-yielding Latin American debt.
Chile's peso CLP=CL bid down 0.21 percent to 467.30 per dollar.
Inflation data in Chile quickened to 0.4 percent in May, more than market expectations for a 0.3 percent increase but not enough to change bets that the central bank will moderate its pace of recent interest rate hikes at a policy meeting next week.
Source: www.reuters.com
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