Mexican peso hits 2-week low as Middle East tensions rise

Jan 3 (Reuters) – The Chilean and Mexican pesos slid to two-week lows against the dollar as investors turned risk averse after a U.S. air strike in Iraq killed a top Iranian commander,
causing tensions to flare in the Middle East.

Major-General Qassem Soleimani, head of Iran’s elite Quds Force, died in an air strike on Baghdad airport, prompting Iran’s Supreme Leader Ayatollah Ali Khamenei to vow harsh
revenge. Leaders from many other voiced concerns and urged restraint.

“The U.S. air attacks on Iran have triggered a flight to ‘safe havens’ in the currency market,” Ulrich Leuchtmann, head of FX and commodity research at Commerzbank, wrote in a note. “EM currencies are the losers … The reflex of the currency

market is to do what has worked in similar situations in the past.”

MSCI’s index for Latin American currencies dropped 0.5% against a steady dollar. Brazil’s real weakened 0.7%, while Chile’s peso dropped almost 2% with a slide in prices of the country’s main export, copper, exacerbating its decline.

“It (Iran) would certainly have to weigh the risk of a significant military conflict with the U.S., a possibility that
market participants may now have to take into account,” Elwin de Groot, head of macro strategy at Rabobank, wrote in a note.

Mexico’s peso weakened to 18.923 per dollar.

With Mexico’s economy flailing, investors now worry that the state itself may be a downgrade risk for oil firm Pemex whose bonds were saved from being labeled junk last year thanks to measures taken by the government.

Crude exporter Colombia’s peso, meanwhile, held steady as oil prices surged more than 3%.

Regional stocks fell 0.6%, with Brazil’ state oil company Petrobras being one of the biggest weights on Sao Paulo’s Bovespa index after the country’s President Jair Bolsonaro warned the rise in fuel prices could
hit the firm.

Stocks in Chile, Mexico and Colombia

Over the week, progress in trade talks between Washington and Beijing and policy easing from China had helped raise demand for riskier Latin American assets, putting the equity index on course for its fifth straight week in the black. Latam’s currencies index, on the other hand, is set to snap a four-week winning streak as it eyed a flat end to the week.

  • Key Latin American stock indexes and currencies:
    Stock indexes and Latest Daily percentages:

    MSCI Emerging Markets 1123.30 -0.42

  • MSCI LatAm 2962.35 -0.72
  • Brazil Bovespa 118130.01 -0.37
  • Mexico IPC 44487.29 0.11
  • Chile IPSA 4839.40 0.72
  • Argentina MerVal 40332.50 -1.884
  • Colombia COLCAP 1663.40 0.28

CURRENCIES

  • Brazil real 4.0536 -0.71
  • Mexico peso 18.9237 -0.48
  • Chile peso 756.2 -0.73
  • Colombia peso 3250 -0.03
  • Peru sol 3.315 -0.48
  • Argentina peso 59.8150 0.00
    (interbank)

(Reporting by Susan Mathew and Shreyashi Sanyal in Bengaluru
Editing by Paul Simao)

Source: https://www.reuters.com/



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