Reuters: US Dollar Report: EMERGING MARKETS-Brazil real drops; trims losses on dollars sale

Reuters: US Dollar Report Reuters.com is your source for breaking news, business, financial and investing news, including personal finance and stocks. Reuters is the leading global provider of news, financial information and technology solutions to the world's media, financial institutions, businesses and individuals. // via fulltextrssfeed.com

EMERGING MARKETS-Brazil real drops; trims losses on dollars sale Jan 30th 2013, 22:41 Wed Jan 30, 2013 5:41pm EST * US GDP disappointment weighs on Latin American currencies * Real drops as Mantega says dollar "will not melt down" * Real trims losses as central bank sells dollars By Walter Brandimarte and Alexandra Alper RIO DE JANEIRO, Jan 30 (Reuters) - The Brazilian real weakened on Wednesday, following gains of over 2 percent since the beginning of the week, after Finance Minister Guido Mantega warned that the government was ready to correct any excessive moves in the exchange rate. The real trimmed losses, however, after the central bank announced it was selling dollars with an agreement to repurchase them in two months, effectively rolling over a line worth some $1.2 billion that expires later in the week. The real closed at 1.9875 per dollar, 0.2 percent weaker than Tuesday's close. The Brazilian central bank's decision to roll over its $1.2 billion line was seen by analysts as the latest sign that the monetary authority is willing to keep the real weaker than 2 per dollar to help anchor inflation expectations. "The central bank is using the currency as an instrument of monetary policy," said Paulo Petrassi, a partner at Leme Investimentos in Florianopolis, Brazil. "I believe the real will now trade between 1.96 and 2.0 per dollar -- that is a level that helps curb inflation without hurting the competitiveness of industry." The central bank's action came right after Mantega's comments weakened the real to nearly 2 per dollar. The real had strengthened past that level on Tuesday as a central bank decision to roll over some currency swaps was interpreted as a green light for a stronger exchange rate in the short term. Piercing the 2-per-dollar mark was a symbolic development in Brazil's foreign exchange market because that had been a limit to an informal trading band of 2.0-2.1 per dollar in effect since early July. For most of last year, the central bank intervened in the market to weaken the real in a strategy to benefit exporters and boost local industry. As late as November, Mantega had promised Brazilian businessmen that a real weaker than 2 per dollar "was here to stay." Despite the recent rally, Mantega still sounded comfortable with the current exchange rate, telling reporters in Brasilia that the real has been "spontaneously moving to a more balanced level." He warned, however, that the government would correct any "excesses" in the exchange rate and assured that the dollar would not "melt down" against the real. An unexpected contraction in the U.S. economy in the fourth quarter announced on Wednesday also weighed on Latin American foreign exchange markets, keeping the currencies of Mexico and Chile little changed against the dollar. The Mexican peso dipped 0.06 percent to 12.7273 per dollar. The U.S. Federal Reserve said it would continue its $85 billion bond-buying plan, as widely expected. Easy monetary policies by the Fed and other major central banks could keep pushing global investors into emerging market assets this year. However, the Mexican peso has fallen more than 1 percent from 10-month high on Jan.17 after the central bank warned it could cut the benchmark interest rate if inflation keeps falling and growth flags. Lower benchmark interest rates could curb the attraction of peso-denominated assets to global investors. Some analysts think the shift in the central bank's stance reflects a desire for a weaker peso. One Mexican central bank board member, Manuel Sanchez, told Reuters he thought external factors were more important in driving peso at the moment than internal factors. Solid U.S. demand has supported Mexico's economy, which sends about 80 percent of its exports to the United States, from sluggish global growth and helped the peso and local stocks, which are trading at record highs. Data last week showed bets in favor of the peso on the Chicago exchange fell back from a record high of nearly $6 billion hit in the middle of the month. The huge number of investors already betting on a stronger peso could discourage new investors from piling in. A sharp loss in the peso could send many speculators running for the exits at the same time, which would drive the currency even weaker. "Internal and external factors do favor the peso, but again given everyone is very long already, it's going to be very choppy," said Thin, who expects the peso to trade in the 12.6 to 12.8 per dollar range over the next week. Latin American FX prices at 21:15 GMT: Currencies daily % YTD % change change Latest Brazil real 1.9875 -0.18 2.64 Mexico peso 12.7273 -0.06 1.07 Chile peso 471.1000 0.08 1.61 Colombia peso 1776.510 -0.19 -0.59 0 Peru sol 2.5670 -0.23 -0.62 Argentina peso 4.9775 -0.05 -1.31 Argentina peso 7.8900 -1.14 -14.07 Link this Share this Digg this Email Reprints

You are receiving this email because you subscribed to this feed at blogtrottr.com. If you no longer wish to receive these emails, you can unsubscribe from this feed, or manage all your subscriptions