Latin American currencies fell on Monday and most regional stock indexes crept higher, as the US dollar strengthened and investors awaited clues this week from the Federal Reserve meeting on monetary policy.
Currencies from Chile, Mexico, Brazil, Colombia and Argentina slipped between 0.2% and 1.4%.
The Brazilian real, however, gave up some early losses after President Jair Bolsonaro said his far-right government intends to send to Congress at the start of next month a bill to lower taxes.
Emerging market assets have rallied this year on hopes that major central banks will cut interest rates in the face of slowing growth. Interest rate futures are fully priced for a quarter-point rate cut from the Fed on Wednesday and investors will keep a tab on what the US central bank flags for the future.
"The 25 bps cut is already priced in so it will require more than that for the markets to lift off from here, possibly a more dovish rhetoric or hints at future rate cuts," said Christian Lawrence, senior Latam FX strategist, Rabobank.
Central banks of developing economies including those in South Africa, Russia and Turkey have already cut key interest rates in the past fortnight, with Brazil's central bank expected to follow suit.
Economists polled by Reuters expect the Banco Central to cut its benchmark interest rate to a record low on Wednesday to revive a sagging economy and bring inflation back up toward target.
"For the central bank of Brazil, the debate is, just like for the Fed, if the first cut will be 25bp or 50bp. The market sees total cuts of 120bp," Citi analysts wrote in a note.
"This compares to 100bp forecast by our economists. This would suggest that the rally in Brazil rates is mature."
Brazil, Latin America's largest economy, is struggling to emerge from a crippling recession, with the government focused on passing through Congress a pension overhaul it hopes will prop up public finances and kick-start growth.
Most regional stock indexes edged higher. Sao Paulo-traded stocks were supported by a jump in shares of brewer Ambev SA and the state-run oil firm Petrobras .
Mexican stocks gained over 1%, its second day of rise in the past 10 days as investors digested second-quarter earnings reports. President Andres Manuel Lopez Obrador said the country was not in recession and the economy was performing increasingly well, rejecting concerns that it may have contracted for two consecutive quarters.
The Argentine peso weakened as investors turned cautious ahead of the presidential election to be held later this year. Opinion polls analyzed by Reuters this month showed the election would likely go to a runoff with no clear winner emerging from the first-round vote on Oct. 27.
Markets in Peru were shut for a local holiday.