Latam FX little changed, vulnerable to Fed view

26 Dec, 2013

MEXICO CITY: Latin American currencies were little changed on Thursday after a string of recent losses, but analysts warned the region's financial assets would face further pressure due to concerns about a reduction in US monetary stimulus next year.

A report showing fewer Americans filed for unemployment benefits last week was the latest sign of improving labor conditions that could push the US Federal Reserve to further draw down the size of its monthly bond purchases.

Latin American currencies are expected to weaken as tighter US monetary policy conditions draw back investment flows that had flooded into higher-yielding emerging markets.

The real gained a slight 0.16 percent, supported by a central bank sale of currency swaps, derivatives that provide investors with protection against a weaker currency.

Brazilian policymakers will halve their forex intervention program in 2014, a move that will make the currency more vulnerable to the withdrawal of the Fed's stimulus, analysts say.

While Brazil's real has lost more than 13 percent this year, Mexico's peso has suffered much less and is down only about 1.6 percent in 2013.

Brazil's sluggish economy, rising inflation, and rapidly deteriorating fiscal accounts, as expenditures grow much more rapidly than revenues, has raised fears its credit rating could be cut.

The Mexican peso has been supported by confidence in an ambitious economic reform agenda that President Enrique Pena Nieto pushed through the country's divided Congress. This month, lawmakers approved a bill to open the country's state-run energy sector to private investment.

The Mexican peso weakened 0.19 percent to 13.0750 per dollar on Thursday.

Chile's peso jumped nearly 0.8 percent to a one-month high as the price of copper, the country's main export product, rose to a four-month peak on the Shanghai Futures Exchange. The London Metal Exchange is shut on Thursday for Boxing Day.

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