Latin American stocks and currencies decline amidst U.S. dollar rally

Latin American stocks and currencies experienced a dip on Wednesday, as investors exercised caution following an uptick in the U.S. dollar. MSCI’s gauge of the region’s currencies decreased by 0.5%, marking its most significant decline in three weeks. The surge in the U.S. dollar, fueled by data revealing a faster-than-expected expansion in the U.S. economy during the third quarter, exerted pressure on emerging market currencies.

MSCI’s index of emerging market currencies retreated from its 19-month highs earlier in the day. Among Latin American currencies, Colombia‘s peso witnessed the most significant decline, falling by 1.2%, marking its most substantial daily drop in over a week. Mexico‘s peso slipped by 0.7% after the central bank revised its forecasts for 2023 and 2024 economic growth upward. However, the bank noted that inflation would take longer than previously projected to reach its target. Despite this, stocks saw a 0.8% increase.

The Chilean peso experienced a marginal 0.1% decline against the dollar, with Chile’s unemployment rate remaining unchanged at 8.9% in the quarter to October. This figure was in line with economists’ expectations. Chile’s benchmark stock index climbed by 0.3%. According to economists at Goldman Sachs, the slight increase in the unemployment rate is attributed more to a recovery in the participation rate than a deterioration in the labor market.

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Brazil‘s real slipped by 0.3% following the central bank’s implementation of new procedures for banks, implying an increase of 34 billion reais ($6.98 billion) in the total capital requirements of the financial system. Argentina’s peso experienced a 0.1% decrease against the dollar as president-elect Javier Milei met with top U.S. officials, and his economic team conferred with IMF officers in an effort to formulate a plan to guide the country’s economy out of crisis. Argentina’s Merval index recovered some losses from the last two sessions, climbing by 2.5%. However, it remains 13% lower for the week after a gain of over 40% in the previous week.

Despite these fluctuations, emerging market assets were poised for a robust November, with expectations of a rally through the year-end. This optimism was fueled by U.S. Treasury yields slipping to multi-month lows, driven by growing confidence in an interest rate cut from the Federal Reserve in early 2024. In early trade, Latin American regional stocks declined by 0.6%. Brazil’s Bovespa index was down by 0.2%, and shares of Petrobras fell by 1.2% after the state-run firm filed requests to the local competition regulator Cade to renegotiate terms stipulating the sale of some of its oil refining and natural gas assets.