Latin American currencies softened against the dollar on Thursday in light, pre-holiday trade after upbeat US economic data supported views of a solid US economic recovery. Brazil's currency weakened, however, after the country's central bank called an auction to buy dollars in order to limit volatility in the foreign exchange market.
Data in the United States solidified views of a solid pace of economic growth in the fourth quarter, although consumer sentiment in December, house prices in November, and the latest weekly jobless claims reports were all slightly below economist's expectations.
Mexico is particularly sensitive to the US economy as it attracts 80 percent of Mexican exports. The peso fell 0.3 percent to 12.34 per US dollar. "What has influenced (the peso) is mixed data in the United States. Some show an improvement in the economic recovery, while others, not so much," said Alejandro Martinez, Latin American debt strategist for HSBC in Mexico.
Latin American currencies were also jittery after Fitch Ratings downgraded Portugal's debt rating to A-plus from AA-minus, reflecting an even slower reduction in its current account deficit and a much more difficult financing environment for banking. Fitch's action comes two days after Moody's Investor Service warned it may downgrade Portugal's A1 rating by one or two notches after a review, citing weak growth prospects and high borrowing costs.
"The way things are in Europe, not improving much, are not helping the peso," Martinez added. Data in Mexico showed annual inflation slipped to 4.25 percent in the year through mid-December from 4.32 percent a month earlier, as prices fell for tomatoes, zucchini and cars, easing some of the pressure on the central bank to raise interest rates.
Most economists expect policymakers to keep Mexico's benchmark rate steady until early 2012 to support a still-weak recovery from recession. Following the data's release, yields edged lower on Mexican interest rate swap contracts due over the next year, suggesting investors slightly trimmed bets on the odds of higher rates.
Brazil's real dropped 0.12 percent to 1.696 per US dollar after Brazil's central bank called an auction to buy US dollars on the spot foreign exchange market as part of an effort to boost international reserves. Interest futures in Brazil rose slightly. The yield on Brazil's June 2011 interest rate futures contract, among the most highly traded of the day, rose to 11.64 percent, up from Wednesday's close of 11.61 percent.
Outstanding loans in Brazil rose for a 20th straight month in November, underscoring the lending boom that has fuelled growth in Latin America's largest economy. Loans in the banking system rose 2.0 percent from October and surged 20.8 percent from a year earlier to 8 trillion reais ($990 billion). The Chilean peso traded slightly lower at 469.30 per US dollar as copper, the nation's main export, fell in New York trade. Currency dealers however, remained sidelined after the release of US data and Portugal's downgrade as they pared back investments ahead of the end-of-year holiday season.
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