(Adds comments, details, updates prices throughout) By Sruthi Shankar Jan 5 (Reuters) – The Colombian peso hit a six-week low versus the dollar on Thursday, leading losses among Latin American currencies after signs of strength in U.S. labor markets raised worries that the Federal Reserve will keep interest rates higher for longer. The peso, recently under pressure from sliding prices of oil – the country’s main export – fell as much as 1.7% to 5003.05 per dollar before steadying at falls of 0.7%. The dollar gained footing after data showed U.S. private payrolls increased more than expected in December and the number of Americans filing new claims for unemployment benefits dropped to a three-month low last week, pointing to a tight labor market that could require the Fed to keep hiking interest rates. Aggressive interest rate hikes, a strong dollar and surging inflation in the wake of Russia-Ukraine war and pandemic disruptions weighed heavily on emerging market assets last year but resources-heavy Latin American markets outperformed due to a rally in commodity prices and early rate hikes. Brazil’s real, among the top emerging market performers of 2022, rose 1.5% to 5.34 per dollar after hitting a seven-week low earlier this week on concerns about high fiscal spending under President Luiz Inacio Lula da Silva. “This means that interest rates are likely to stay high: government borrowing costs have already increased significantly since the election, and the Selic rate (currently at 13.75%) is likely to take longer to fall,” Regis Chatellier, director of EM strategy at Oxford Economics, wrote in a note. “We think risk premia will stay elevated, with investors’ heavy positioning also limiting the upside for Brazilian bonds,” Chatellier added while downgrading Brazil’s local bonds to “neutral.” Brazil’s Planning Minister Simone Tebet on Thursday acknowledged having disagreements with Lula and said she will take an austere but conciliatory stance on public spending. Data showed industrial production in Brazil fell 0.1% in November from the previous month, keeping the sector below pre-pandemic levels and underscoring a negative trend in recent months. “Industry stuck in the doldrums,” said William Jackson, chief emerging markets economist at Capital Economics. “But the central bank will wait for further signs of inflation approaching target and, perhaps more importantly, easing fiscal risks before turning to interest rate cuts.” Meanwhile, the Mexican peso slipped only marginally after minutes from the Bank of Mexico’s December meeting showed policymakers are considering another rate hike in February. The peso ended 2022 with one of its strongest performances in a decade, attracted by restrictive monetary policy, but many expect the gains to reverse this year on worries about recession in the United States, which is Mexico’s top trade partner, and a potential end to the Mexican central bank’s rate-hike cycle. Stock markets across the region rallied 3% despite losses on Wall Street as investors bet on a rebound in China’s economy. Key Latin American stock indexes and currencies at 1916 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 983.91 0.99 MSCI LatAm 2117.81 2.96 Brazil Bovespa 107442.01 2 Mexico IPC 50730.23 1.13 Chile IPSA 5122.19 0.6 Argentina MerVal 208468.92 3.685 Colombia COLCAP 1303.19 0.88 Currencies Latest Daily % change Brazil real 5.3580 1.73 Mexico peso 19.3179 0.24 Chile peso 851.9 0.36 Colombia peso 4961.6 -0.81 Peru sol 3.8014 0.61 Argentina peso (interbank) 178.9300 -0.15 Argentina peso (parallel) 348 1.72 (Reporting by Sruthi Shankar and Shreyashi Sanyal in Bengaluru; Editing by Paul Simao and Nick Zieminski)
