Reuters: US Dollar Report: EMERGING MARKETS-Latam FX weaker as gloomy data mounts in Europe

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EMERGING MARKETS-Latam FX weaker as gloomy data mounts in Europe May 2nd 2012, 16:28 Wed May 2, 2012 12:28pm EDT * Euro zone jobs, factory data weigh on economic outlook * Brazil's real loses 0.5 percent to weakest in 33 months * Mexican peso weakens 0.4 percent, analysts eye oil prices By Brad Haynes SAO PAULO, May 2 (Reuters) - Latin American currencies weakened against the dollar on Wednesday as signs of Europe's eroding job market and weak manufacturing sector darkened the outlook for a global recovery. Brazil's currency, the real, lost 0.5 percent to 1.917 per dollar, slipping to what could be its weakest close since July 2009 under the weight of relentless central bank intervention and the possibility of record-low interest rates. The Mexican peso weakened 0.4 percent to 12.959, slipping from a three-week high. "After a raft of disappointing economic data, the picture in Europe has certainly darkened today," said Michael Derks, Chief Strategist at FX Pro in London. "With diminished risk appetite, the dollar is making headway against all comers." Unemployment rose to a 15-year high in the euro zone, a key market for Latin American exports, and factory data confirmed that a downturn hitting Italy and Spain hard now appears to be taking root in core members France and Germany. Europe's weak manufacturing sector contrasted with United States factory data on Tuesday that reinforced the outlook for a self-sustaining recovery in the world's largest economy. The U.S. data bolstered currency strength in Mexico, which sells about 80 percent of exports to its northern neighbor. The Mexican peso gained nearly 1 percent on Tuesday, when it was open for trading while other currency markets in the region were closed for a holiday. Mexico's peso has strengthened around 8 percent in 2012 so far, holding on to much of a rally earlier this year as solid U.S. economic data bolsters the outlook for Mexican investments. However, Derks warned that the peso remains vulnerable to a drop in the value of Mexico's oil exports as crude prices have slipped from a nearly one-year high in March. Brent crude for June fell 1.4 percent on Wednesday. By contrast, Brazil's real has already given up the gains of a January rally, losing 2.5 percent in the year to date as the central bank's dollar-buying auctions helped push the currency to its weakest in 33 months. The bank said on Wednesday it purchased $7.223 billion on the spot foreign exchange market in the calendar month to April 27, more than offsetting the $5.803 billion of dollar inflows over the same time. Gathering expectations of record-low interest rates in Latin America's largest economy have also sapped the real's strength. Yields on Brazilian interest rate futures fell on Wednesday due to speculation that a change to rules on savings accounts could make room to cut the country's benchmark interest rate below a record low of 8.75 percent. The central bank has already slashed the key rate by 3.5 percentage points since August, reducing the appeal of Brazilian assets for foreign investors, who have strengthened the local currency with their portfolio flows in recent years. The Chilean peso was little changed on Tuesday, edging 0.2 percent stronger on real investment flows. "There's a strong inflow of dollars at the moment which is offsetting the market's broader attitude," said Rodrigo Sarria, a trader at Celfin Capital in Santiago. "But we're guessing the peso could end up weaker by the end of the day." Link this Share this Digg this Email Reprints

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