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Latam Currencies Reverse Losses on US Dollar
 Samantha Pearson & Lorena Segura - Reuters
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October 09, 2010
Sao Paulo/Mexico City - Latin America's currencies strengthened against the dollar on Friday after weak U.S. jobs data fueled speculation that the United States will have to inject more money into its struggling economy.
Such a measure would help to keep yields on U.S. Treasuries close to record lows, encouraging even more investors to pour their money into the region's higher-yielding assets.
Pumping more money into the U.S. economy would also weaken the dollar, which would automatically make Latin America's currencies more valuable against the greenback.
After heavy losses in the previous session, the Mexican currency bounced back, trading 0.78 percent stronger at 12.4408 per dollar.
"Payrolls was a disappointment and the U.S. dollar sold off on this," said Michael Woolfolk, senior currency strategist at BNY Mellon in New York. "Negative U.S. data is now contributing to dollar declines, whereas before it was actually helping it."
Monthly employment data from the United States, one of the region's top trading partners, showed the world's biggest economy lost more jobs than expected in September.
But traders were sceptical about the ability of the peso to push much higher throughout the rest of the afternoon.
"There is a long weekend in the United States and we've seen some squaring of positions by foreigners," said Enrique Trejo, head of currency trading at brokerage IXE in Mexico City.
The region's currencies had weakened earlier in the session after comments from euro zone officials boosted the dollar.
Jean-Claude Juncker, the chairman of euro zone finance ministers, said the euro was too strong against the dollar. [ID:nN05208901]
Brewing tensions over various governments' attempts to accelerate growth via currency interventions, in what Brazil's finance minister recently labeled a currency war, has made the dollar a key focus for the regional market.
The Brazilian real BRBY moved in and out of positive territory in early trading on the local spot market but was later bid 0.53 percent stronger at 1.675 reais per U.S. dollar.
The currency has rallied more than 7 percent since the end of June, putting pressure on exporters whose goods have become more expensive abroad.
Brazil is one of the region's most attractive targets for yield-hungry investors because of its high benchmark interest rate, currently 10.75 percent.
Earlier this week, the government increased its tax on foreign purchases of bonds but the currency has continued to strengthen. [ID:N08228807]
The Chilean peso CLP= firmed 0.29 percent to 481.80 per dollar, remaining closely tied to the movement of the euro against the dollar in the wake of Juncker's comments.
"The local exchange rate is absolutely indexed to the dollar-euro pair," said one trader in Santiago.
Traders said threats of government intervention in the market were also helping to cap the peso's gains.
(Additional reporting by Froilan Romero and Brad Haynes in Santiago; Editing by Diane Craft)
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