Reuters: US Dollar Report: EMERGING MARKETS-Mexico peso up on cenbank statement; real trims loss

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EMERGING MARKETS-Mexico peso up on cenbank statement; real trims loss Jun 8th 2012, 17:30 Fri Jun 8, 2012 1:30pm EDT * Mexico peso gains as cenbank dashes rate cut speculation * Brazil cenbank says global downturn sapping inflation * Chile's peso falls with copper prices, muted inflation * Brazil real 0.1 pct lower, Mexico peso up 0.7 pct By Walter Brandimarte RIO DE JANEIRO, June 8 (Reuters) - Mexico's peso strengthened on Friday as policymakers dashed speculation of imminent rate cuts in the country, while the Brazilian real trimmed early losses after the central bank intervened in the foreign exchange market. Other Latin American currencies remained weaker, however, as investors worried about the global economic impact of an escalating European debt crisis. The Mexican peso traded lower early in the session but bounced after the central bank kept its key interest rate unchanged at 4.5 percent. The bank made clear its next move could go either way, dropping a flirtation with a rate cut that had weighed on the currency. The bank also acknowledged a "moderate" risk to inflation from a weaker peso, which has lost about 10 percent since mid March. The Mexican peso was 0.7 percent stronger in the afternoon, at 13.9699 per dollar. The Brazilian real also opened lower but trimmed losses after the central bank intervened in the foreign exchange market with a sale of currency swaps, which essentially increase the supply of dollars in the market. That was the second time the central bank offered to sell currency swaps this week. The auction was announced when the real traded slightly above 2.04 per dollar, reinforcing a market perception that, at least for now, policymakers are drawing an informal line around 2.05 per greenback. "When the real reaches a certain level, of 2.05 per dollar, we know the central bank will intervene," said Jankiel Santos, chief economist with BES Investimento in Sao Paulo. The real was 0.13 percent weaker in the afternoon, at 2.0292 per greenback. Other Latin American currencies weakened, however, as investors cautiously watched political and economic developments in the euro zone. Spain is expected to request European aid for its struggling banks over the weekend, becoming the fourth and biggest European country to seek assistance since the euro zone's debt crisis began. Chile's peso lost 0.12 percent as prices of copper , the country's main export product, fell to a six-month low in London. "Markets are all in the red, with stocks falling, copper prices tumbling and the dollar strengthening against the euro - all those factors are negative for the peso," said a trader in Santiago. Chile's lower-than-expected inflation reading for May also contributed to a weaker peso as it eliminated any speculation of an immediate rate hike by the central bank. Chile's consumer price index was unchanged in May from the previous month, the government statistics agency INE said. Analysts polled by Reuters had forecast a median 0.2 percent increase for the index. MORE RATE CUTS IN BRAZIL Brazil's interest-rate futures slid on Friday after the central bank suggested it is poised to keep cutting the country's base interest rate. Interest-rate contracts maturing in January 2013 dropped 7 basis points to 7.820 percent after policymakers said in minutes of their latest monetary policy meeting that a global economic downturn is helping to bring inflation back to target. The bank's committee, known as the Copom, repeated its guidance that more rate cuts should be conducted "sparingly." Policymakers unanimously cut the benchmark Selic rate for a seventh consecutive time to a record low of 8.5 percent on May 30. "This leaves the door open for additional rate cuts," said Alberto Ramos, a senior economist with Goldman Sachs, adding that the next cuts should be "moderate," or smaller than 75 basis points, and "somewhat data dependent." Goldman Sachs expects Brazil will cut the Selic again to 8.0 percent in July. "An extension of the easing cycle beyond the July meeting is certainly possible particularly if the external backdrop continues to deteriorate and the domestic real business cycle dynamics remain sluggish," Ramos said. Latin American FX prices from Reuters at 1307 GMT: Currencies daily % yearly % change change Latest Brazil real 2.0292 -0.13 -7.92 Mexico peso 13.9699 0.69 0.00 Argentina peso* 5.9300 -0.17 -20.24 Chile peso 501.0000 -0.12 3.65 Colombia peso 1,777.5000 -0.33 9.05 Peru sol 2.6820 -0.04 0.56 * Argentine peso's rate between brokerages Link this Share this Digg this Email Reprints

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