EM FX turn positive; Mexican peso recovers from central bank reshuffle falls

Emerging market currencies turned positive for the day and stocks added to gains as markets brushed past higher-than-expected US inflation figures, with a central bank leadership change in Mexico denting the peso.

US inflation for May rose more than expected, but not enough to for the US Federal Reserve's to change its loose monetary policy, analysts said. The European Central Bank kept stimulus taps wide open at its meeting.

"It is eye-popping but it's important to consider where we are versus a year ago," said Scott Brown, chief economist at Raymond James in Florida. "I don't think there is any reason for the Fed to panic."

MSCI's index of EM currencies rose 0.1% with Brazil's real rallying strongly as attention turned to next week's central bank meeting. Analysts increasingly see a rate hike to control inflation, which would make the currency an attractive high yielder for carry trade.

"Economic optimism and the hope that the Brazilian central bank would more than partially normalise the key interest rate have again significantly boosted the BRL appreciation last month," said Commerzbank's EM FX analysts.

"However, we remain cautious in view of country-specific risks," they said, citing the possibility of President Jair Bolsonao taking non-conventional decisions in the run-up to presidential elections next year.

Stocks in Sao Pailo were lifted by a 11% jump in planemaker Embraer after its subsidiary, Eve Urban Air Mobility Solutions, entered merger talks with Zanite Acquisition Corp for a potential $2 billion deal.

Mexico's peso erased early losses after a reshuffle of the central bank governor and finance minister on Wednesday, to rise 0.2%.

Mexican Finance Minister Arturo Herrera was tapped on Wednesday by President Andres Manuel Lopez Obrador to lead the central bank, while economist Rogelio Ramirez de la O, a close ally, was appointed finance minister.

"Banxico's Board shall become more dovish," strategists at Citi Research said, adding that they do not expect that many changes on the fiscal front.

The moves come after the ruling party lost some of its majority in the Lower House of the Congress, making it harder to pass proposed reforms that could alter market-friendly policies.

Peru's sol made small moves as investors looked for more news on the progress of presidential vote counting. Socialist Pedro Catillo maintained a slight lead, although rival right-wing conservative Keiko Fujimori contested several ballots.

Falling copper prices weighed on top exporter Chile's peso which extended losses to day three. Chile's economy surged 15.2% in May and 14.7% in the second quarter, a central bank poll showed.