Most Latin American currencies rose on Friday, May 13th, even as the dollar hovered at two-decade highs on Friday, but were set for weekly losses amid a broader risk-off on global growth fears, while Mexico’s peso was buoyed after the central bank hiked interest rates.
Mexico’s peso gained 0.4% against the dollar, bouncing off of one-week lows after the Bank of Mexico on Thursday raised the benchmark interest rate by 50 basis points to 7.0%, as expected. Peru’s sol slipped 0.6% even after its own central bank raised rates by 50 basis points to 5%, the tenth consecutive hike as the copper-producing Andean nation battles spiraling inflation.
Argentina’s central bank, too, announced a hike in the benchmark interest rate by 200 basis points to 49% after data earlier in the day showed inflation in the 12 months through April was running at 58%. “Inflation has risen to levels dangerous, and the only way in theory to combat that is raising rates, but central bank action isn’t determining the value of foreign currency currently… We need global factors to come together for a more positive Latam outlook, as everything is so downwardly revised,” said Juan Perez, director of trading at Monex USA.
MSCI’s index of Latam currencies eyed their fourth straight week in the red after the greenback saw a boost in late April on U.S. rate hike expectations. Chile’s peso and Colombia’s peso hovered near pandemic lows. “We’re back to the levels of market fear and chaos as in the beginning of the pandemic in 2020 – 2022 is another moment of shock,” Perez added, citing risks around China, rising U.S. interest rates, slowing growth and the war in Ukraine.
Stocks were headed for a 0.6% weekly decline as investors were driven away from riskier assets amid broader recessionary fears, and were tracking their sixth straight week in the red. However, headlines pointing to smoother commercial trade, new trade patterns with Latin American countries or a resolution in the Russia-Ukraine war could lift stocks in the weeks to come, analysts say.
Brazil’s real, Chile’s peso and Colombia’s peso were set for their fourth straight weeks in the red, skidding between 0.1% and 1.2% on the week.