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EMERGING MARKETS-Latam currencies fall against strong greenback ahead of Fed rate decision

·3 min read

* Mexican economy likely grew 2.9% in August y/y -estimate * Brazil's Lula maintains large lead over Bolsonaro -poll * Ecuador reaches deal with China to restructure debt (Updates prices) By Amruta Khandekar and Anisha Sircar Sept 20 (Reuters) - Most Latin American currencies fell on Tuesday with the dollar staying close to recent peaks as investors braced for a sharp interest rate hike from the U.S. Federal Reserve on Wednesday. The dollar index stayed close to two-decade highs, with markets pricing in 83% odds of a third consecutive 75-basis-points rate hike from the Fed while bets of an even bigger 100-basis-points rate hike stood at 17%. "The strong dollar environment is particularly worrying for those EMs with large dollar debts, including parts of Latin America," William Jackson, chief emerging markets economist at Capital Economics, wrote in a note. "Meanwhile, there is a group of countries where dollar debt are large but currencies are not down sharply on a year-to-date basis, such as Colombia and Chile. ... That could lead to sharper falls in their currencies and higher dollar debt servicing costs," Jackson added. Colombia's peso slipped 0.4% while Chile's peso fell 1.1%. The two currencies are down around 8% each so far this year, lagging all major regional peers in 2022. Along with the Fed, a host of rate decisions by other central banks are due this week, including Brazil on Wednesday and Turkey and South Africa on Thursday. Investor sentiment in Latam markets, buoyed earlier this year by higher commodity prices, has been bogged down by a sturdy dollar and a risk-off mood in recent weeks amid heightened recession worries and rampant inflation. Political noise has also weighed on markets, with Brazil's presidential election outcome awaited in October. A poll on Monday showed leftist front runner Luiz Inacio Lula da Silva slightly extended his lead over President Jair Bolsonaro. Brazil's real inched up. The country's economy minister said on Monday that monetary tightening should be ending in the country, predicting falling interest rates next year. The Mexican peso slipped 0.3%. Latam's second-largest economy likely grew by 2.9% in August compared with the same month a year earlier, a preliminary estimate from national statistics agency INEGI showed. A dip in oil and copper prices also weighed on the resource-rich region. Returning after an extended weekend, Chilean stocks tumbled 2.7%, logging their worst session in two weeks. Elsewhere, Ecuador reached an agreement to restructure its debt with Chinese banks, the government said Monday, providing relief worth some $1.4 billion until 2025. Key Latin American stock indexes and currencies at 1842 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 945.18 0.71 MSCI LatAm 2185.40 0.71 Brazil Bovespa 111785.41 -0.03 Mexico IPC 46995.63 0.43 Chile IPSA 5371.98 -2.73 Argentina MerVal 148342.22 -1.278 Colombia COLCAP 1204.22 -0.1 Currencies Latest Daily % change Brazil real 5.1552 0.20 Mexico peso 20.0020 -0.46 Chile peso 932.7 -0.56 Colombia peso 4420.96 -0.44 Peru sol 3.8978 -0.98 Argentina peso 144.6300 -0.18 (interbank) (Reporting by Amruta Khandekar, Anisha Sircar and Susan Mathew in Bangaluru; editing by Jonathan Oatis and Leslie Adler)