Latam FX dips; Peruvian sol set for best week in 20 yrs ahead of polls

Latin American currencies tumbled on Friday as the dollar recovered from two-week lows, but were set for weekly gains with Peru's sol on track to its best week in 20 years as it bounced back from record lows.

Brazil's real led losses in the region, while Mexico's peso and Chile's peso fell 0.4% and 0.5%, respectively.

The dollar was set for its worst week this year after surprisingly weak US jobs figures and ongoing loose Federal Reserve policy. Weakness in the greenback, as well as treasury yields, took some pressure off risk-driven assets.

"While several Fed policymakers are forecasting a rate rise as soon as next year, the median forecast of policymakers is for rates to remain on hold until 2024," analysts at UBS said.

"That means returns on cash will stay negative."

MSCI's index of regional currencies up nearly 1% for the week, with Peru's sol by far the best performer and on track for a weekly gain of nearly 4% - its best in more than 20 years.

The currency was supported by gains in copper prices as it recovered sharply from record lows touched last week. Peru is set to vote for a new president on Sunday after a year of political turmoil, with a focus on the COVID-19 pandemic, corruption and mining policies in the world's No. 2 copper producer.

"While a smooth transition of governmental power and the ability of the new administration to execute are critical to effectively combating the coronavirus pandemic and reopening the country, near-term rating implications should be limited with any election outcome," Fitch Ratings said in a recent note.

Brazil's real was set for a strong week, despite a record-high COVID-19 death rate in the country, as investors looked to a likely rate hike by the central bank at its next meeting.

Annual inflation rose 6% in March, raising fears that higher-than-expected consumer prices could impact a struggling economic recovery, supporting the case for a hike.

Latam stocks fell in early trade, tracking losses across broader emerging markets. But they were also set for a strong week, with MSCI's index of Latam stocks set to add nearly 3%.