Latin American currencies weakened on Friday amid fears the US Federal Reserve could end its bond-buying program by year-end, removing a key stimulus measure that has been fuelling appetite for higher-yielding assets in emerging markets.
Further pressuring the Mexican peso was data showing the annual pace of growth in the first quarter was the weakest in three years. The numbers increased bets that Mexico may further cut its base interest rate later this year, reducing the allure of its currency.
The peso dropped 0.3 percent to an over three-week low of 12.3087 per dollar. The Brazilian real slid 0.5 percent to a near four-month low of 2.0377 per greenback after San Francisco Fed President John Williams said the US central bank could start to reduce its monetary stimulus this summer and end its bond purchases by the end of the year.
"That talk of more limited Fed stimulus is strengthening the dollar. Other currencies have been taking a beating from the dollar the whole week," said a currency trader at a large Brazilian bank. So far this week, the real has lost some 0.9 percent against the US dollar, nearing a level that could trigger a central bank intervention, according to analysts.
Brazil's central bank last acted in the foreign exchange market at the end of March, when the real neared the 2.03-per-dollar level. Analysts believe that despite this year's poor performance in the country's trade balance, policymakers will not allow the real to weaken much further.
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