Most Latin American currencies fell on Wednesday, under pressure from high US Treasury yields and a strong dollar, as investors awaited signals from the Federal Reserve on when it plans to begin tapering its massive stimulus program.
Colombia's peso fell 1% in early trade, the most among its regional peers, as a drop in oil prices weighed on the crude exporting country's currency.
Mexico's peso shed 0.7%. A Reuters poll expects the peso to struggle more than previously thought in 2022 as its interest rate advantage over its emerging market peers keeps narrowing due to a cautious central bank and interest rate hikes in other economies.
Brazil's real fell 0.4%, while MSCI's index of Latin American currencies lost 0.4%.
Minutes from the Brazilian central bank's last meeting showed the bank had been considering an even larger rate hike than the 150-basis point raise last week, underscoring an aggressive response to soaring inflation.
Rising inflation has been a recurring theme across most economies in the wake of a post-COVID-19 recovery. Investors fear that the trend could push the Fed into bringing forward its plans for policy tightening.
Mexican peso slides about 1% on worries about slowing economy
"What will be decisive for the dollar will be what the FOMC has to say about inflation in its statement and ditto chairman Jerome Powell at the press conference," Antje Praefcke, foreign exchange and emerging market analyst at Commerzbank, wrote in a note.
Broader emerging markets retreated ahead of the Fed, with MSCI's stock index down 0.3%, while currencies fell 0.1%.
Peru's sol appeared to have arrested recent losses, after the Ministry of Energy and Mines said a rural community would lift a blockade at the country's largest copper mine, Antamina, which had rattled markets this week.
Still, sentiment remained on edge with talks between the government and the community set to resume on Friday. Peruvian markets have been stung by a spate of movements against the country's major mining sector this year.
Latin American stocks sank in early trade, with MSCI's index down 0.9%.