Reuters: US Dollar Report: EMERGING MARKETS-Mexican peso weakens on rate cut fears, real jumps

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EMERGING MARKETS-Mexican peso weakens on rate cut fears, real jumps Jan 29th 2013, 00:49 Mon Jan 28, 2013 7:49pm EST * Brazil real up 1.5 pct on Central Bank currency swap rollover * Investors bet Brazil's move reflects inflation concerns * Mexico's peso loses 0.45 pct as Carstens bolsters rate cut bets By Jean Arce and Alexandra Alper RIO DE JANEIRO, Jan 28 (Reuters) - The Mexican peso lost ground for the second trading session in a row on Monday after comments by the country's central bank governor bolstered bets that Latin America's No. 2 economy is eyeing a rate cut. But Brazil's real gained 1.5 percent, bucking losses in other Latin American foreign exchange markets, after the central bank signaled it would favor a stronger currency to fight inflation. The Mexican peso lost 0.45 percent to 12.7652 per dollar after Mexico's central bank head Agustin Carstens said the peso is trading at "a relatively competitive level." His comments backed the bank's statement earlier this month that it could move to cut rates if inflation continues to cool and economic growth flags, dropping its threat to tighten policy. The central bank's communique "takes support away from the (Mexican peso), which is faced with the expectation of a possible benchmark rate cut in the near future and much more dovish minutes than in the last communique," Banorte-IXE analysts said in a note to clients on Monday. The peso has slipped about 1.33 percent from a 10 month high notched on Jan. 17, the day before the communique's release, and is still weaker than it was before the global financial crisis. "It's going to be a cautious week for financial markets because of (U.S.) economic data that is coming out," said Rafael Camarena, an economist at Banco Santander, in reference to the U.S. preliminary fourth quarter GDP results, a Federal Reserve statement, and an employment report slated for later this week. Camarena added that the peso would likely strengthen if the data is positive. In Brazil, speculation that the government now wants a real around 2 per dollar - the latest in a series of changes of heart by policymakers - grew after the central bank announced on Monday that it was rolling over all of the 37,000 traditional currency swaps that expire on Feb. 1. Those contracts, which mimic the sale of dollars in the futures market, were originally sold by the bank to boost liquidity in the foreign exchange market at the end of the year, a period when greenbacks traditionally are scarcer. The swap rollover "is a good indication that the central bank is really becoming more tolerant to a stronger real, at least in the short term," said Flavia Cattan-Naslausky, a strategist with RBS Securities in Stamford, Connecticut. "I believe that is related to a deterioration in inflation." The real closed at 2.0006 per dollar, 1.5 percent stronger from Friday's close. Investors could soon try to take the currency past 2 per dollar -- a mark it has not crossed since early July, when the government intervened to weaken the currency in order to boost exports. Brazil's benchmark consumer inflation rate closed 2012 at 5.84 percent, well above the center of a government target of 4.5 percent, but still within a tolerance range of 2 percentage points. Prices continued to climb in the beginning of 2013 as items such as food and personal expenses rose. Latin American FX prices at 23:55 GMT: Currencies daily % YTD % change change Latest Brazil real 2.0006 1.5 1.97 Mexico peso 12.7652 -0.45 0.78 Chile peso 473.1000 -0.27 1.18 Colombia peso 1780.7300 -0.07 -0.83 Peru sol 2.5600 -0.08 -0.35 Argentina peso 4.9700 -0.05 -1.16 Argentina peso 7.5800 0.53 -10.55 Link this Share this Digg this Email Reprints

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