By Susan Mathew
Sept 8 (Reuters) – Emerging market currencies fell sharply on Tuesday, with Brazil’s real dropping almost 2%, as economic and trade uncertainty and weakness in the dollar’s main European peers boosted the greenback’s safe-haven appeal.
Amid concerns that a recovery in oil demand could weaken as coronavirus infections flare up around the world, crude prices tanked, further pressuring petro-currencies such as Mexican MXN= and Colombian pesos COP=, which fell 0.4% and 1% respectively. O/R
In a move that could threaten its investment rating, Mexico, late on Monday, raised a non-binding limit for gross debt to 70% of GDP, almost 20 percentage points above last year’s level, for the remaining four years of the term of its fiscally conservative president.
Meanwhile, the Mexican government’s 2021 spending blueprint will likely forecast revenue similar to this year’s level, or 6.1 trillion pesos ($282 billion), a senior lawmaker said on Monday.
The dollar soared as the euro EUR= fell ahead of European Central Bank meeting, while Brexit uncertainty knocked the pound GBP=. FRX/
Worries about a tough economic rebound from the coronavirus pandemic and simmering U.S.-China tensions after President Donald Trump again raised the idea of decoupling the U.S. and Chinese economies also sent investors to the safety of the greenback. MKTS/GLOB
“Risk appetite remains weak as U.S.-China geopolitical tensions flared up again overnight. With the U.S. election only weeks away, we expect more of this to come,” said Ned Rumpeltin, European head of FX strategy at TD Securities.
“Correlations between risky assets and the dollar have started to rise sharply again. In line with this, we are seeing a further bout of dollar strength against most G10 and major EM currencies.”
The Argentine peso ARS=RASL slipped to new lows, but global ratings agency S&P upgraded Argentina’s long-term sovereign credit rating on Monday, pulling it out of default territory after the government successfully restructured over $100 billion in sovereign debt.
Coming back from a long weekend, Brazil’s real BRBY was last down 1.1%, while Chile’s peso CLP= dipped 0.1%.
Elsewhere, South Africa’s rand ZAR= fell as much as 1.5% after the recession-hit economy’s second quarter GDP fell more than expected – contracting by a record 51%, as a strict coronavirus-induced lockdown stalled economic activity.
Emerging markets stocks .MSCIEF slid to their lowest in more than two weeks as Wall Street slumped on a tech rout. .N
Main stocks indexes in Brazil .BVSP and Mexico .MXX slid more than 1%, while Colombian shares .COLCAP were set for the biggest one-day drop in more than six weeks.
Key Latin American stock indexes and currencies at 1430 GMT:
Daily % change
MSCI Emerging Markets .MSCIEF
MSCI LatAm .MILA00000PUS
Brazil Bovespa .BVSP
Mexico IPC .MXX
Chile IPSA .SPIPSA
Argentina MerVal .MERV
Colombia COLCAP .COLCAP
Daily % change
Brazil real BRBY
Mexico peso MXN=D2
Chile peso CLP=CL
Colombia peso COP=
Peru sol PEN=PE
Argentina peso (interbank) ARS=RASL
(Reporting by Susan Mathew in Bengaluru; Editing by Alistair Bell)
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