Latin American currencies lifted off record lows on Friday tracking an uptick in sentiment as central banks flooded world markets with liquidity and governments ramped up support efforts. Brazil's real and Chile's peso rose more than 1%, with the latter on track for its best one-day gain in seven weeks. Mexico's peso looked to break a seven session losing streak, up 0.2%.
Santiago's IPSA stock index surged after the stimulus announcement and continued on Friday, jumping 5.7%. Brazil stocks built on Thursday's gains, up 3.5%. But tensions remained as confirmed coronavirus cases in Brazil more than doubled in two days, while a diplomatic spat over the disease's origins between President Jair Bolsonaro's son and the Chinese ambassador threatened relations with Brazil's top trading partner. "Risk appetite has taken a very welcome turn for the better overnight, but sentiment remains very fragile," said Ned Rumpeltin, European head of FX strategy at TD Securities.
"Today will be an important test to see if the 'Just sell the rally dynamic' is still in play." Developing world stocks and currencies found some relief after the US Federal Reserve on Thursday opened currency swap lines with nine central banks, including some in emerging markets.
The facility would allow them to tap up to $450 billion, aimed at providing easy access to dollars as the coronavirus pandemic significantly disrupts economic activity. But it may not be enough to alleviate the credit strains at the heart of the problem, some analysts said. A Reuters poll showed the global economy is already in recession. The dollar paused its march higher as the various liquidity measures stalled a rush to the greenback, but may only be temporary as funding needs still remain.
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