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EMERGING MARKETS-Latam FX sinks ahead of Fed; Chile c.bank seen holding rates

Ambar Warrick
·2-min read

* Recent oil weakness hurts Mexican, Colombian pesos * Weak FDI data hurts Brazil's real * Chilean c.bank expected to hold rates By Ambar Warrick Jan 27 (Reuters) - The Mexican and Colombian pesos led losses across Latin American currencies on Wednesday amid uncertainty over U.S. monetary policy, while Chile's peso fell ahead of a central bank rate decision. Recent weakness in the oil market -- driven by concerns over waning demand due to COVID-19 -- has weighed on the currencies of crude exporters Mexico and Colombia, with the two falling more than 1% each on Wednesday. Mexico's peso has sold off this week after President Andres Manuel Lopez Obrador tested positive for the coronavirus, sparking criticism of his administration's handling of the pandemic. The country has the fourth-highest death toll in the world from the virus, with investors calling for more fiscal spending to offset its economic impact. Other Latin American currencies also retreated as investors switched to safer trades ahead of a monetary policy decision from the U.S. Federal Reserve, which will shed more light on the central bank's stance in the face of increased fiscal spending. Chile's peso fell about 0.8% against the dollar, with its central bank expected to hold interest rates at ultra-low levels. "The bank will mention that the economic recovery is ongoing, but that the balance of risks remain biased to the downside considering the uncertainty regarding the pandemic," Credit Suisse analysts wrote in a note. "The bank will acknowledge that recent inflation has been slightly higher than expected, but will likely underline that this has been largely due to transitory effects." Chile's central bank has signaled that it intends to keep rates at 0.5% until 2022. Brazil's real dropped 1% after marking its best day in two weeks. Central bank data showed foreign direct investment in the country halved in 2020 from the prior year, reflecting the impact of the pandemic. Latin American stocks also retreated, on track for losses in six of the past seven sessions. Key Latin American stock indexes and currencies: Latest Daily % change MSCI Emerging Markets 1377.16 -0.84 MSCI LatAm 2363.29 -0.94 Brazil Bovespa 115829.57 -0.54 Mexico IPC - - Chile IPSA 4455.13 -0.95 Argentina MerVal - - Colombia COLCAP 1402.25 - Currencies Latest Daily % change Brazil real 5.3777 -1.02 Mexico peso 20.2056 -1.20 Chile peso 737.7 -0.75 Colombia peso 3652 -1.11 Peru sol 3.6497 -0.16 Argentina peso 87.1100 -0.10 (interbank) (Reporting by Ambar Warrick in Bengaluru)