Latin American currencies edged up on Friday as investors waited for clearer signs of how Europe will deal with its sovereign debt crisis. "The market is stagnant and trading volumes are very low. The world is waiting for September to see if Germany will approve the ECB's stimulus measures," said Joo Medeiros, a director at Pioneer brokerage in So Paulo.
German Chancellor Angela Merkel on Thursday said a vow by European Central Bank chief Mario Draghi to do everything necessary to defend the euro zone is "completely in line" with the approach of European leaders. Merkel's remarks sparked a bounce in European equities, but with no clear plans in place, they failed to inject greater confidence in Latin American markets.
Mexico's peso strengthened 0.32 percent to 13.1250 against the dollar, finishing the week down about 0.3 percent. Brazil's real gained 0.19 percent to 2.0145, helped by a central bank report showing signs of growth in the country's lackluster economy. The currency ended the week near flat, stuck in a narrow range. In Brazil, a central bank report on Friday showed that the economy in June grew at its fastest pace in 15 months. The bank's IBC-Br economic activity index rose a seasonally adjusted 0.75 percent from May, in line with the median forecast of 18 economists surveyed by Reuters.
Investors, however, remained reluctant to buy the real on concerns the central bank is ready to intervene if the real slips below 2 to the dollar. "Investors are starting to feel like in Brazil the currency is overdue for a correction, especially because it does feel like the growth downgrade expectations are bottoming out," said Marjorie Hernandez, a Latin American strategist at HSBC in New York. "But really what is driving Brazil more than anything is intervention risk."
In Mexico, data released on Thursday showed Latin America's second-largest economy lost momentum in the second quarter, though Mexico has largely avoided the more extreme slowdown seen in Brazil, buoying investors confidence in the country's outlook. Foreign investment in Mexican debt hit record highs this month, with investors pouring $866 billion into peso debt of three-year maturities or more, according to August 8 data from Mexico's central bank.
"The story of strong flows into the Mexican bond market continues, and I wouldn't say it's the strongest argument for Mexican appreciation, but in the short term that's what has been giving it the most support," said HSBC's Hernandez said. The Chilean peso dipped 0.04 percent in a fifth day of losses. On Thursday the country's central bank kept its base interest rate steady at 5 percent, on concerns that energy and food prices could grow in coming months. Lower interest rates could make the country's bonds more attractive for foreign investors.