Reuters: US Dollar Report: EMERGING MARKETS-Post-Fed rally in Latam currencies loses steam

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EMERGING MARKETS-Post-Fed rally in Latam currencies loses steam Sep 19th 2013, 14:56 Thu Sep 19, 2013 10:56am EDT * Brazil, Mexico currencies dip; Colombia peso gains * Investors see Fed more data-dependent, stoking volatility By Silvio Cascione SAO PAULO, Sept 19 (Reuters) - The currencies of Brazil and Mexico retreated on Thursday after soaring the prior day as investor concerns resurfaced on the eventual cutback in the Federal Reserve's bond buying program, which so far has mostly has been positive for emerging markets. Brazil's real slid 0.36 percent after jumping nearly 3 percent on Wednesday to its strongest level since late June. Mexico's peso , which gained nearly 2 percent after the Fed's surprise decision, dipped 0.20 percent. Colombia's peso stood out among Latin America's currencies to gain 0.96 percent against the dollar Emerging market currencies, stocks and bonds soared on Wednesday after the Fed, unsure about the health of a tentative economic recovery, decided to keep its $85 billion-a-month bond-buying stimulus program in full gear. As the Fed's easy money policies have driven investors to seek higher returns in emerging markets, those assets suffered under the prospect of the Fed reducing its monetary stimulus, an idea first floated by Fed Chairman Ben Bernanke in May. Many investors welcomed Wednesday's announcement as the trigger of a positive trend for emerging market assets that could last for weeks. However, others expressed caution as the Fed's strategy seems to be more dependent on economic indicators than it looked before -- which could make the outlook for U.S. monetary policy less predictable, hence feeding volatility. "Asset prices will remain susceptible to surprises in U.S. economic indicators that could alter market expectations about the timing of tapering," said Jose Carlos de Faria, chief Brazil economist at Deutsche Bank, in a note. Jobless claims data suggested on Thursday a pickup in hiring in September, which if sustained could make the Fed more comfortable about tapering stimulus by year-end. "The uncertainty created by the decision not to taper may end up generating further bouts of market volatility which in turn might create new problems for emerging market policymakers," wrote Capital Economics analysts in a research note. "More fundamentally, the structural problems that put several emerging markets in the firing line over the summer have not gone away," citing Brazil's widening balance of payments' current account deficit. For Siobhan Morden, head of Latin America strategy at Jefferies, the fact that emerging market currencies were already recovering ground before the Fed's announcement suggests this is a solid positive trend though. "It looks as if the markets have already adjusted to the event risk, even if the Fed postpones tapering to October or even December," she said. Key Latin American currencies at 1417 GMT: Currencies daily % YTD % change change Latest Brazil real 2.2014 -0.36 -7.33 Mexico peso 12.6900 -0.20 1.37 Colombia peso 1888.8500 0.96 -6.50 Peru sol 2.7440 0.26 -7.03 Argentina peso (interbank) 5.7525 0.00 -14.60 Argentina peso (parallel) 9.3400 0.43 -27.41 Link this Share this Digg this Email Reprints

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