Brazil's real resumes decline as fiscal worries weigh, Latam markets await Fed
Latam FX up 0.44%; stocks slip 0.32%
U.S. Federal Reserve rate decision due at 1400 ET
By Pranav Kashyap
Dec 18 (Reuters) -Brazil's real slipped on Wednesday, continuing its decline as markets stayed cautious over the progress of Brazil's fiscal package, while the rest of the Latin America braced for a rate cut by the U.S. Federal Reserve later in the day.
The real BRL= dropped 0.55% to 6.138 against the dollar, after ending the previous day on a positive note, breaking a three-day losing streak as the central bank's intervention in the currency market helped stem some losses.
In a bid to further stabilize the currency, the central bank will hold another auction in the current session, offering up to 15,000 traditional foreign exchange swap contracts.
Brazil's lower house of Congress gave the green light to the main text of a crucial fiscal bill late on Tuesday, a key component of the government's proposed fiscal package.
However, lawmakers still need to vote on several amendments to the main text, along with other related projects. Following final approval, they would then be voted on by the Senate.
Brazilian assets from stocks to bonds and its currency have found themselves in the crosshairs of investors, who have been doubtful whether lawmakers would be able to pass the main part of a fiscal bill aimed at putting government finances on a more sustainable footing.
"The overall risk premium on Brazil is increasing and that's clearly getting reflected in the sell-off of longer term bonds and the real is reacting to the increase in that fiscal risk premium," said Olga Yangol, managing director, head of emerging markets research and strategy, Americas - Credit Agricole CIB.
Yangol also agreed that, with fiscal risk premiums increasing, it could trigger credit rating agencies to put Brazil under a microscope.
"In the case of Moody's, they were quite optimistic with respect to Brazil... we could see ratings agencies kind of revisiting that view," she added.
Meanwhile, global investors have their eyes on the Federal Reserve as it gears up to announce its much-anticipated interest rate decision at 1400 ET. While the market is largely predicting a 25 basis-point cut, analysts foresee a more hawkish outlook for 2025.
Traders are bracing for the central bank to potentially raise its long-term interest rate projections. In response, U.S. yields and the dollar have been on the rise. Overnight, benchmark 10-year yields <US10YT=RR > hit a one-month high, peaking at around 4.4%, before settling slightly at 4.39%.
MSCI's index for Latin American currencies .MILA00000CUS was up 0.2%, after falling to near two-year lows on Tuesday.
Mexico's peso MXN rose 0.26%, after data showed private spending rose 1.1% during the third quarter compared to the previous three-month period.
Mexico's central bank is expected to cut interest rates by 25 basis points on Thursday.
Chile's peso CLP= slipped 0.1%. Its central bank projects economic growth between 1.5% and 2.5% for 2025 and 2026, after an expansion of 2.3% this year, according to its December monetary policy report. (IPoM).
The stocks index .MILA00000PUS slipped 0.32%, with Brazil's benchmark .BVSP falling the most, down 1.04%
Key Latin American stock indexes and currencies:
Stock indexes | Latest | Daily % change |
MSCI Emerging Markets .MSCIEF | 1097.13 | 0.36 |
MSCI LatAm .MILA00000PUS | 1939.21 | -0.32 |
Brazil Bovespa .BVSP | 123405.45 | -1.04 |
Mexico IPC .MXX | 50241.55 | -0.36 |
Chile IPSA .SPIPSA | 6735.26 | 0.07 |
Argentina MerVal .MERV | 2592200.5 | 0 |
Colombia COLCAP .COLCAP | 1373.82 | 0.45 |
Currencies | Latest | Daily % change |
Brazil real BRL= | 6.1385 | -0.55 |
Mexico peso MXN= | 20.115 | 0.26 |
Chile peso CLP= | 987.53 | -0.1 |
Colombia peso COP= | 4345.93 | -0.07 |
Peru sol PEN= | 3.732 | -0.04 |
Argentina peso (interbank) ARS=RASL | 1,021.5 | -0.05 |
Argentina peso (parallel) ARSB= | 1,170.0 | -0.43 |
Reporting by Pranav Kashyap in Bengaluru
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