(Bloomberg) — Latin American currencies rose, pacing gains in emerging markets after the latest US labor data eased fears of a pronounced slowdown in the world’s biggest economy.
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Mexico’s peso advanced 0.9%, pushing a key gauge of developing currencies 0.3% higher. The Colombian and Chilean pesos rose at least 0.9% each amid the stronger risk appetite, which lifted commodity prices.
Data on Thursday showed initial US jobless claims fell last week by the most in nearly a year. The figures helped ease concern about a deeper US economic slowdown that sank global equity markets on Monday.
“Slight moderation in claims data is helping sentiment on the US employment outlook,” said Brad Bechtel, global head of foreign exchange at Jefferies in New York. “Latin America is performing relatively well across the board.”
Faster-than-expected inflation in Mexico and Chile also helped strengthen the currencies as it dimmed the outlook for fresh interest rate cuts.
The unwinding of carry trade strategies has driven the recent spike in the Mexican peso’s volatility, making it the worst performing major currency this quarter with an around 4.3% loss. Strategists are pouring over Mexico peso-yen cross rates to gauge whether the currency is set for more gains or bound to resume a slump.
Bechtel said the peso had yet to break past its intraday high yesterday against the yen. If it can clear that level, the Mexican currency may be set to gain even more ground, he said.
Sticky Inflation
Across emerging markets there were more signs that policymakers are struggling with persistent inflation. Turkey’s central bank said it needs to see a lasting slowdown in consumer price increases before it can cut rates, while India’s central bank left borrowing costs unchanged and warned high food prices could spill into so-called second round effects.
Consumer prices in Mexico and Chile rose more than expected in July, according to reports published on Thursday, the latest sign that policymakers in both nations have limited room for new rate cuts. Mexico’s central bank will deliver a policy statement later on Thursday and economists are divided on whether Banxico will cut its benchmark rate by a quarter-point or hold it steady at 11% after the peso’s recent losses threaten to fan inflation.
Tech Slump
Emerging equities, meanwhile, snapped a two-day winning streak as tech shares including Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co. slipped. The benchmark MSCI EM stock index fell 0.3% to bring this week’s losses to 1.3%.
–With assistance from Peter Laca, Selcuk Gokoluk and Davison Santana.
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