Latin American currencies weakened sharply on Monday as expectations of accelerating US inflation pushed US bond yields higher, reducing the allure of emerging market assets. Yields on 10-year US debt hit their highest in over four years as huge tax cuts and a two-year budget agreement drove the Treasury to ramp up borrowing.
Rising inflation expectations due to fiscal stimulus and a recovering US economy have also fuelled bets the Federal Reserve could hike rates at a faster-than-expected pace. "Higher US yields are a negative for risk-taking, which is boosting the value of the dollar worldwide," said Dan Kawa, a partner at Flag Asset Management.
The US dollar strengthened against a broad range of emerging-market currencies, with Latin American currencies among the most vulnerable. Currencies in Chile and Brazil weakened 0.7 percent and 0.9 percent, respectively. The Mexican and Colombian pesos led the losses, dropping more than 1 percent, in the wake of falling crude prices.
Oil prices fell after Iran's oil minister said there would be no need to extend a deal on supply restraint if crude prices rose further. Since early 2017, the Organization of the Petroleum Exporting Countries, Russia and other non-Opec crude producers have curbed output with the aim of eliminating a global oil glut. The pact runs until the end of 2018.
Latin American equities were mostly down due to risk aversion, although local drivers kept a lid on losses. The benchmark Bovespa stock index slipped 0.7 percent, weighed down by blue chips.
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