Latam currencies fall as Brazil’s real, Mexican peso weigh

Updated at 03:38 p.m. ET/ 1938 GMT

By Johann M Cherian and Shristi Achar A

June 26 (Reuters) –A gauge of Latin American currencies dropped to a near eight-month low on Wednesday, dragged by Brazil’s real as investors assessed comments by President Luiz Inacio Lula da Silva, and the Mexican peso that lost ground ahead of its interest rate decision.

MSCI’s index tracking currencies in resources-rich Latin America .MILA00000CUS dropped 1.2% to its lowest since early November 2023, as the dollar strengthened.

Brazil’s real BRL= dropped 1.1% on the day.

Lula pushed back against spending cuts in an interview with local media outlet UOL, while adding that the current levels of interest rates of 10.5% were high with inflation at 4%.

Traders have been on edge about central bank independence after the regulator shifted to a more hawkish stance on interest rates recently. The real and the benchmark share index .BVSP are among bottom performers in the region.

Still, Felipe Camargo, senior emerging markets economist at Oxford Economics said: “We expect President Lula to limit himself to a combative rhetoric, but not actively intervene or make politically motivated central bank board appointments that could undermine its credibility.”

Separately, data showed consumer prices in the region’s largest economy rose less than expected by mid-June despite pressure from food inflation.

Market participants also await a crucial U.S. inflation report due on Friday for clues on the trajectory of the Federal Reserve’s monetary policy trajectory, potentially impacting the greenback’s strength.

Oil exporter Mexico’s peso MXN= depreciated 1.2% as investors prepared for a Banxico monetary policy decision on Thursday, while also watching for executive appointments in President-electClaudia Sheinbaum’s new government.

A Reuters poll showed the local central bank is expected to hold its benchmark interest rate steady at 11%, as inflationary pressures continue and the peso’s depreciation following the June 2 general elections.

“A ‘hawkish’ statement from Banxico should give further impetus for the USD/MXN to decline to under 18 units per dollar,” strategists at Macquarie noted.

Fellow oil producer Colombia’s peso COP= and copper producer Chile’s peso CLP= shed 1.2% each.

On the equities front, an index tracking regional stocks .MILA00000PUS declined 1%.

Heavy-weight Brazil’s Bovespa .BVSP traded flat as yields on local bonds BR2YT=RR, BR5YT=RR, BR10YT=RR climbed.

Mexico’s main stock index .MXX inched 0.1% lower, while Chilean equities .SPIPSA gained around 2%.

Argentina’s MerVal index .MERV edged 0.2% higher. Investor attention was squarely on the vote on several bills in the country’s lower house due on Thursday, that could influence president Javier Milei’s plans for the embattled economy.

Elsewhere, Kenya’s president withdrew planned tax rises, bowing to pressure from protesters who had stormed parliament, launched demonstrations across the country and threatened more action this week. The local shilling KES= however was flat.

Key Latin American stock indexes and currencies:

Reporting by Johann M Cherian and Shristi Achar A in Bengaluru; Editing by Emelia Sithole-Matarise and Alistair Bell