October 17, 2018 / 8:37 PM / a month ago

EMERGING MARKETS-Strong dollar knocks most Latam FX, Brazil real at 20-wk high

    By Susan Mathew and Claudia Violante
    Oct 17 (Reuters) - A strong dollar, bolstered by the
prospect of another U.S. rate hike this year, hit most Latin
American currencies except Brazil's real, which hit its highest
level since May.
    Regional stocks also fell, mirroring the decline on Wall
Street as broad agreement by members of the U.S. Federal Reserve
on the need to raise borrowing costs further cemented investor
concerns that had helped cause a major sell-off the week before.
 
    The minutes of the Fed's September meeting showed members
generally agreed borrowing costs were set to rise further and a
unanimous vote for last month's hike raised expectations for a
December rate hike. The minutes also showed some members seeing
further indications of strength in the U.S. economy.

    This spurred further strength in the dollar, which took the
Mexican peso lower after four straight days of gains,
while the Argentine peso declined the most, weakening 0.7
percent.
    Official data showed that Argentina's consumer prices rose
6.5 percent in September, bring annual inflation to 40.5
percent. 
    Runaway inflation has led to Argentina to hike benchmark
interest rates dramatically - first to 45 percent, then to 60
percent - pushing its economy into recession and prompting it to
turn to the International Monetary Fund for a funding facility
to shore up its finances and plug the currency's free fall.  
    Brazil's real, however, was undeterred by the
dollar's strength as it gained more than 1 percent and hit its
highest since May 28 at 3.6638 against the dollar. 
    The currency has gained nearly every day this month on hopes
that market-preferred presidential candidate Jair Bolsonaro
would win elections at the second round vote on Oct. 28. 
    "The market had erased some of the long dollar positions...
and the flow helped dollar weaken against the real," said
Fernanda Consorte, a currency strategist at Banco Ourinvest.
    "I believe Bolsonaro's victory is already in the price and
that the floor is between 3.65-3.70 reais. I do not see any
basis today for the exchange rate at 3.60-3.55 reais," she said.
    Any additional rise for the real would depend on Bolsonaro's
policy moves once in office, Consorte said.
    Stocks on Sao Paulo's Bovespa stock index, however,
fell, led by Eletrobras shares after the
Senate rejected a bill regarding the sale of its distribution
companies as prospects for its full-privatization are seen as
fading with Bolsonaro's advisers deeply split about the
decision.
    Meanwhile, Argentina's Merval index fell more than 
2 percent, while Mexico's IPC fell after two gaining
days. 
        
    Latin American stock indexes and currencies at 2010 GMT:
 Stock indexes                           Daily %      YTD %
                                          change     change
                              Latest              
 MSCI Emerging Markets          983.71      -0.1     -15.08
                                                  
 MSCI LatAm                    2764.97     -0.32      -2.23
                                                  
 Brazil Bovespa               85696.96     -0.02      12.17
                                                  
 Mexico IPC                   47936.45     -0.53      -2.87
                                                  
 Chile IPSA                    5141.19     -0.06      -0.06
                                                  
 Argentina MerVal             28744.49     -2.33      -4.39
                                                  
 Colombia IGBC                12601.01      1.25      10.82
                                                  
                                                           
 Currencies                              Daily %      YTD %
                                          change     change
                                                  
                                Latest            
 Brazil real                    3.6834     -0.07     -10.05
                                                  
 Mexico peso                   18.8780     -0.67       4.35
                                                  
 Chile peso                      671.2     -0.30      -8.43
                                                  
 Colombia peso                  3066.2     -0.52      -2.75
 Peru sol                        3.335     -0.06      -2.94
                                                  
 Argentina peso (interbank)    36.1600     -0.44     -48.56
                                                  
 Argentina peso (parallel)       36.75      0.68     -47.67
                                                  
 

 (Reporting by Susan Mathew in Bengaluru; editing by Grant
McCool)
  
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