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EMERGING MARKETS-Latam FX retreats on hawkish Fed, Brazil c.bank awaited

·3 min read

* Brazil's real comes off 1-year high * Mexican peso leads Latam losses * EM assets tumble (Updates after Fed meeting) By Susan Mathew and Ambar Warrick June 16 (Reuters) - Latin American currencies retreated on Wednesday after hawkish signals from the U.S. Federal Reserve confirmed some market fears about rising inflation, while investors also awaited a central bank decision in Brazil. Fed policymakers brought forward their timeline for raising interest rates to 2023, and forecast inflation above the bank's 2% target. Even as the bank reaffirmed that policy would remain accommodative in the near-term, emerging markets retreated as fears of overheating inflation in the United States were somewhat confirmed. Mexico's peso was the worst performer among Latam currencies, falling as much as 1.9% to a two-month low of 20.389, while Brazil's real came off a one-year high, shedding 0.2%. "Given the economic backdrop, maximum policy accommodation is hard to square with the levels of inflation and growth that are present in the economy," said Charlie Ripley, senior investment strategist for Allianz Investment Management. "This inflection point in policy setting has come sooner than expected with the economy running well above the initial forecasts this year." Emerging markets fell across the board, as U.S. treasury yields shot up after the meeting, narrowing the gap between risky and risk-free debt. The MSCI's index of EM currencies tumbled 0.3%. Losses in the real were somewhat mitigated as many expect the Brazil central bank to hint at a more aggressive tightening cycle, dropping commitment to a "partial normalization" of policy when it meets later in the day. The bank is widely expected to deliver a third consecutive interest rate hike, to 4.25%. Noting the real's 5% appreciation since Brazil's May rate hike, Citi analysts wrote: "We expect BRL to trade well in the aftermath of the meeting, especially if they drop the "partial normalization" guidance." Mexico's peso fell for a fourth straight session after ratings agency S&P affirmed its rating a couple of notches above junk, retaining a negative outlook. Investors remained on edge about Peru, fearing sweeping changes to mining laws in the world's No.2 copper producer should socialist Pedro Castillo become president. The sol currency fell 0.5%, heading toward all-time lows. Average yields on Peru's local currency bonds closed on Tuesday at 5.32%, a six-week high and up some 25 basis points so far this week on the GBI-EM index. Castillo is claiming victory in elections though rival Keiko Fujimori is fighting the result and an official winner is yet to be declared. Key Latin American stock indexes and currencies: Latest Daily % change MSCI Emerging Markets 1364.68 -0.99 MSCI LatAm 2632.53 -0.65 Brazil Bovespa 128982.66 -0.85 Mexico IPC 50558.59 -0.69 Chile IPSA 4352.48 -0.21 Argentina MerVal 67124.79 0.178 Colombia COLCAP 1251.94 -0.03 Currencies Latest Daily % change Brazil real 5.0521 -0.23 Mexico peso 20.2825 -1.37 Chile peso 729.4 -0.39 Colombia peso 3680.24 0.42 Peru sol 3.9007 -0.54 Argentina peso 95.3100 -0.01 (interbank) (Reporting by Susan Mathew and Ambar Warrick in Bengaluru; editing by Sujata Rao, David Gregorio and Nick Zieminski)