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EMERGING MARKETS-Latam FX rises as dollar stalls; Colombia hit by second downgrade

·3 min read

* Real worst Latam performer this week on political woes * Colombian downgrade to junk largely expected -Goldman Sachs * Peru's sol best weekly performer, up 1.9% (Adds details, updates prices) By Susan Mathew and Ambar Warrick July 2 (Reuters) - Most Latin American currencies rose on Friday as the dollar dropped on a higher U.S. unemployment rate, while Colombian assets were mired in volatility after a second rating downgrade to junk. Brazil's real added 0.1% against the dollar, while Mexico's peso rose more than 1%. Chile's peso firmed 1%. Colombia's peso flitted between gains and losses, trading 0.2% higher at 1819 GMT after hitting a two-month low earlier. Colombian dollar bonds fell half a cent to a one-month low after Fitch joined S&P in downgrading Colombia's foreign and local long-term rating to junk on deteriorating public finances. The premium demanded by investors to hold Colombia's debt over safe-haven U.S. Treasuries jumped by 6 basis points to 256 bps - its highest level since early October, the JPMorgan EMBI index showed. "The rating action by Fitch was to a significant extent expected and also warranted given the recent fiscal, political, and social developments," Goldman Sachs analysts wrote in a note. "Moody’s ... is likely to deliver a rating downgrade in the near term." The downgrade comes amid increasing social unrest in the country over the past few months, as well as doubts over fiscal strength due to the COVID-19 pandemic. Colombian stocks were trading 1.7% higher after dropping up to 0.9%. The dollar fell as investors focused on a higher unemployment rate in the United States, even as June payrolls rose more than expected. The mixed data likely lessens the chances of policy tightening by the Federal Reserve, which benefits emerging markets. In Brazil, the real was set to underperform its peers this week with a 2% loss. Data showed industrial output in Brazil rose in May but missed a Reuters poll forecast. Meanwhile, the leader of the lower House said there is no political path to launch impeachment proceedings against Brazilian President Jair Bolsonaro, amid growing calls for his ouster. Bolsonaro faces elections next year, and has said he wouldn't hand over power if there is any fraud. In the run-up to elections, the real is seen depreciating to 5.10 at the close of 2021, a Reuters poll showed. A hawkish central bank has kept its carry trade value attractive so far this year. Peru's sol was the best weekly performer in Latam, rising 1.9%, although the currency was volatile as investors awaited further developments on the country's hotly contested presidential elections. Key Latin American stock indexes and currencies: Latest Daily % change MSCI Emerging Markets 1357.53 -0.78 MSCI LatAm 2625.43 0.98 Brazil Bovespa 127565.26 1.51 Mexico IPC 50245.19 -0.26 Chile IPSA 4329.99 -0.36 Argentina MerVal 63190.69 1.822 Colombia COLCAP 1281.13 1.64 Currencies Latest Daily % change Brazil real 5.0390 0.08 Mexico peso 19.7631 1.13 Chile peso 733 0.94 Colombia peso 3770 0.16 Peru sol 3.8974 -0.98 Argentina peso 95.7900 -0.02 (interbank) (Reporting by Susan Mathew and Ambar Warrick in Bengaluru; Editing by Leslie Adler)