Reuters: US Dollar Report: EMERGING MARKETS-Mexican peso gains on Fed bets, Brazil real slips

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EMERGING MARKETS-Mexican peso gains on Fed bets, Brazil real slips Mar 26th 2012, 16:05 Mon Mar 26, 2012 12:05pm EDT * Bernanke, U.S. housing data spur hopes of QE3 * "No surprises" in Brazil January economic activity * Mexico peso gains 0.6 pct, Brazil real loses 0.24 pct By Caroline Stauffer RIO DE JANEIRO, March 26 (Reuters) - The Mexican and Chilean pesos strengthened on Monday after comments from the U.S. Federal Reserve chairman suggested emerging market assets would continue to benefit from low U.S. interest rates and possibly more monetary easing. Fed Chairman Ben Bernanke said the U.S. economy needed to grow faster to lower unemployment, while U.S. data later showed a surprise drop in February purchases of previously owned homes in the world's largest economy. Recent data had pointed to a U.S. recovery, making a new round of so-called quantitative easing increasingly unlikely, but Bernanke's comments and the housing data renewed hopes that the Fed might again flood markets with cash that frequently ends up in high-yielding emerging market assets. "That money could come to Mexico," said Antonio Magana, a currency trader at Interacciones brokerage in Mexico City. The peso strengthened 0.6 percent to 12.6634 per dollar while Chile's peso gained 0.54 percent to bid at 486.3 per dollar following last week's slump which took the country's currency to a two-week low on Friday. U.S. economic recovery is a double-edged sword for Mexico, which sends nearly 80 percent of its exports across the border. Its economic outlook can deteriorate alongside that of the United States, but its financial markets gain on the prospect of low U.S. interest rates and monetary stimulus. Brazil's real, which is less sensitive to data from the United States because Brazil does more business with China, meanwhile weakened 0.24 percent to bid 1.8131 per dollar. The real has become less appealing to investors as the government commits to weakening the currency to boost nascent industry. The central bank held an auction to buy U.S. dollars on Friday even though the real was trading well above 1.8 per dollar, now seen as its maximum tolerated exchange rate. "With inflation slowing, taming the real is the overriding priority of policy -- This is what policymakers are focused on from the very top," said London-based Capital Economics Economist Neil Shearing. Local data showed Brazil's economic activity slipped in January, as weak exports and a sharper-than-expected decline in industrial output offset buoyant retail sales. "We had industrial production and retail sales data for January so we knew that industry was very weak in January and consumption was pretty strong - I don't think there were any major surprises in the data this morning," said Shearing. Link this Share this Digg this Email Reprints

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