Latam FX Recovers But Omicron Concerns Remain

  • Brazilian economy contracts in third quarter
  • Mexican peso jumps 1.7%

December 2 (Reuters) – Most Latin American currencies strengthened on Thursday, although sentiment remained fragile amid uncertainty over the Omicron coronavirus variant, and as economic concerns increased with data showing that Brazil slipped into a recession in the third quarter.

Brazil’s economy, Latin America’s largest, contracted 0.1% in the three months to September, amid soaring inflation and severe drought. Brazil’s economic rebound faltered as inflation soared to double digits, forcing the central bank to aggressively increase borrowing costs. Read more

It comes as investors worry about the potential economic fallout from the Omicron variant as countries step up travel measures and restrictions.

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The Brazilian real rose 0.3%, benefiting from some support from expectations of improving demand for iron ore exports to China.

Brazilian stocks (.BVSP) rose 2.6%, recovering from a 13-month low. Analysts have pointed out some bright spots for the economy by 2022, especially for sectors that have not yet fully recovered from the pandemic.

“We expect some of the service sectors still affected by COVID (especially household services) to recover further in the coming months, alongside further progress in the COVID vaccination program and new fiscal stimulus, “Goldman Sachs analysts wrote in a note.

But they also see soaring inflation and political uncertainty weigh on economic activity in the months to come.

The Brazilian Senate on Thursday adopted the main text of a constitutional amendment that will ease the ceiling on government spending and pave the way for a broader social assistance program. Read more

The Mexican peso jumped 1.7%, as it recovered from a more than a year low last week.

Mexican President Andres Manuel Lopez Obrador’s choice for next central bank chairman Victoria Rodriguez underscored his commitment to central bank independence, days after his appointment rocked markets amid concerns sparked by political interference. Read more

Geopolitically, Mexico is analyzing a range of responses to a proposed US tax credit for electric vehicles and is even considering applying tariffs, Mexican Economy Minister Tatiana Clouthier said on Thursday. Read more

For Argentina, a potential deal with the International Monetary Fund (IMF) to roll over some $ 45 billion it owes would be a major step forward, but not enough to improve the struggling country’s credit rating, Moody’s said on Thursday. . Read more

Broader emerging market currencies also recovered from Thursday’s recent losses, although investors were waiting for more data on the COVID front.

But the Turkish lira fell 3%. The central bank has announced that it will suspend rate cuts in 2022.

Main Latin American stock market indices and currencies:

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Reporting by Ambar Warrick; Editing by Frances Kerry and Andrea Ricci

Our Standards: Thomson Reuters Trust Principles.

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