July 29, 2020 / 8:21 PM / 9 days ago

EMERGING MARKETS-Mexican peso, Brazilian real falter; Other Latam FX gain after Fed decision

 (Updates to close)
    By Shreyashi Sanyal and Susan Mathew
    July 29 (Reuters) - Mexico's peso edged lower on Wednesday
after a dour economic forecast, as did Brazil's real, while most
other Latin American currencies firmed after the U.S. Federal
Reserve pledged to keep interest rates low, denting the dollar. 
    The Fed repeated its willingness to use the "full range of
tools" to support the U.S. economy and keep interest rates near
zero for as long as it takes to recover from the coronavirus
outbreak, saying the economic path will depend significantly on
the course of the virus.
    While this came as no surprise, it sent the dollar to
two-year lows.
    "The most notable thing is the statement that the path of
the economy will depend on COVID-19," said Nela Richardson,
investment strategist at Edward Jones in St. Louis.
    "That sentence shows the primacy of COVID-19 in their
outlook and the uncertainty of their outlook because of it."
    Fed Chair Jerome Powell said the health crisis had begun to
weigh on economic recovery. 
    Chile's peso scaled a near seven-month high, while
crude exporter Colombia's currency rose 0.5% aided also
by a rise in oil prices.
    Mexico's peso struggled for direction, last down
0.2%, after Gerardo Esquivel, one of the Bank of Mexico's five
board members, said Mexico's gross domestic product could
contract between 8.5% and 10.5% in 2020 due to impacts of the
virus, expecting a year-on-year fall of 20% in the second
quarter.
    The second quarter data is due on Thursday.
    Meanwhile, the bank extended the duration of a Fed swap line
of up to $60 billion until at least March 31, 2021, from its
current expiration date of September 30.
    Brazil's real erased gains to trade steady to lower. 
    Figures signaled the central bank's emergency measures to
boost the availability of credit were paying off with bank
lending spreads in Brazil shrinking to their lowest in over six
years and default ratios hitting a 2020 low in June.
 
    On the reform front, Brazil's Economy Minister Paulo Guedes
said he is very optimistic on pushing through wide-ranging tax
reform, with the next stage centering on income and payroll
taxes.
    Stocks in the region were mixed with the Brazil Bovespa
index rising 1.3% to hit its highest in nearly five
months, while Mexican stocks fell 0.1%. 
    Santander Brasil rose 3.7% as the lender said it
may not need extra provisioning this year, after setting aside
3.2 billion reais ($621 million) for potential
coronavirus-related loan losses.
    
    Latin American stock indexes and currencies 2002 GMT:
  Stock indexes           Latest   Daily %
                                   change
 MSCI Emerging Markets    1086.51     0.41
                                   
 MSCI LatAm               2125.01     0.96
                                   
 Brazil Bovespa         105444.20     1.28
                                   
 Mexico IPC              37727.88    -0.11
                                   
 Chile IPSA               3983.37    -1.78
                                   
 Argentina MerVal        48897.69   -0.075
                                   
 Colombia COLCAP          1174.91     0.33
                                   
                                          
      Currencies          Latest   Daily %
                                   change
 Brazil real               5.1729    -0.03
                                   
 Mexico peso              21.9500    -0.11
                                   
 Chile peso                 757.4     0.95
                                   
 Colombia peso             3704.6     0.49
                                   
 Peru sol                  3.4977     0.29
                                   
 Argentina peso           72.1900    -0.07
 (interbank)                       
                                   
 
 (Reporting by Shreyashi Sanyal in Bengaluru; Editing by
Bernadette Baum and Grant McCool)
  
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