July 16, 2012 / 9:04 PM / 5 years ago

EMERGING MARKETS-Mexico FX firms to 2-month high on Fed stimulus bets

* U.S. retail sales drop for 3rd month in June
    * Markets speculate about stimulus measures from U.S., China
    * Brazil real flat, Mexico peso up 0.56 pct

    By Rachel Uranga
    MEXICO CITY, July 16 (Reuters) - Mexico's peso strengthened
to its strongest point in more than two months on Monday after a
surprise decline in U.S. retail sales fed speculation about
extra stimulus measures from China and the United States.
    The Mexican peso firmed 0.7 percent and Brazil's real
  edged up 0.03 percent after the government
reported U.S. retail sales fell for a third straight month in
June. 
    The soft economic figure spurred hopes U.S. Federal Reserve
Chairman Ben Bernanke could hint at a third round of Fed
bond-buying when he delivers his semiannual monetary policy
report to Congress on Tuesday and Wednesday. 
    "The bulls in the market are very much in that direction,"
said Enrique Alvarez, an analyst at IDEAglobal in New York.
"There is (confidence) that there's going to be a higher
probability of quantitative easing."
    Stimulus measures tend to lift riskier assets, as investors
search for higher yielding markets.
    Expectations China, the largest consumer of commodities
exported by Latin America, would unleash additional stimulus
measures later this week also bolstered sentiment, especially in
Brazil where the Asian giant is a top importer. 
    "Reports that China may adopt stimulus measures this week
are neutralizing concerns about Europe," said Luciano Rostagno,
chief strategist with WestLB bank in Sao Paulo. 
    But Brazil's real continues to be pressured by expectations
that the government will continue to resort to lower interest
rates and a weaker currency to support a faltering economy. 
    Last week the central bank cut its benchmark interest rate
for the eighth straight meeting to a record low 8 percent in a
bid to stimulate an economy that for nearly a year has failed to
respond to a barrage of stimulus measures. 
    Economists surveyed by Brazil's central bank have an
increasingly dim economic outlook, having cut their estimate for
Brazilian growth this year for the 10th consecutive week, to 1.9
percent. 
    The bleak prospects, coupled with the central bank's recent
buying and selling of dollars in the local spot market to
control volatility, has kept the currency trading in a narrow
range.
    The moves are turning some investors away from Brazil and
towards Latin America's second largest economy, Mexico, where
the central bank has a hands-off approach to its currency and
growth has been slow but steady.
    "You are getting a lot of flows that I think to a certain
degree are benefiting from the weakness and the stall in the
Brazilian real," Alvarez added.    

        
    Latin American FX prices from Reuters at 2030 GMT:
    
 Currencies                       daily %  year-to
                                   change   date %
                          Latest            change
 Brazil real              2.0360     0.03    -8.23
                                           
 Mexico peso             13.2282     0.56     5.60
                                           
 Argentina peso*          6.2800    -1.75   -24.68
                                           
 Chile peso             489.5000     0.86     6.09
                                           
 Peru sol                 2.6210     0.08     2.90
                                           
 * Argentine peso's rate between                  
 brokerages

0 : 0
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