Brazilian real set for weekly fall; Mexican peso heads for weekly gain

Latin American currencies weakened against a strong dollar on Friday, with Brazil's real on track for its worst session in three weeks.

The greenback bounced back strongly after declines when investors shrugged off data showing higher US inflation as transitory.

Brazil's real fell 0.6%, on track for a weekly loss of around 0.7%.

Brazil's services sector rebounded in April, official figures showed on Friday, though it failed to recover all the ground lost in March and activity remained below levels in February last year before the pandemic struck.

Mexico's peso fell 0.2% but optimism after mid-term elections leaves it with gains of about 1.2% for the week - its best week since early May.

Data on Friday showed Mexican industrial output in April posted its largest annual increase in over 2-1/2 decades, 35.7%.

"Hopes of a rapid recovery from the pandemic are supporting the peso, as are expectations of interest rate hikes. But much seems to be priced in already," said Commerzbank analysts.

"(With the) expected start of (the US Federal Reserve)tapering from Q4 2021 and expected discussions on first rate hikes, challenging times are likely ahead (for the peso)."

Chile's peso rose 0.3% tracking copper's ride higher. But rising COVID-19 cases kept sentiment in check with Chilean health authorities announcing a blanket lockdown across the capital Santiago on Thursday.

Second biggest copper exporter Peru's sol made small gains. Socialist Pedro Castillo held his slim lead in presidential elections as counting nearly drew to a close. But with rival Keiko Fujimori contesting ballots, the final results may take a while.

Among stocks, Brazilian food processor BRF SA rose up to 10% in early morning trading after o Globo columnist Lauro Jardim reported meatpacker JBS SA is interested in potentially acquiring the company. Rival meatpacker Marfrig Global Foods announced last week it reached a 31% stake in BRF.

Embraer extended its rally after Zanite Acquisition Corp confirmed merger talks with the Brazilian planemaker's subsidiary Eve Urban Air Mobility Solutions.