Mexican peso leads Latam FX higher, gains for fourth straight week

Dec 24 (Reuters) – Most Latin American stocks and currencies inched higher in thin pre-Christmas trading with the Mexican peso leading gains to a five-week high, while Chile’s peso fell tracking weak copper prices.

Mexico’s peso rose 0.2% and was set to gain for the fourth consecutive week. Currency of the oil-exporting nation took support from strong oil prices which gained 4% this week.

However, the Mexican economy unexpectedly shrank by 0.2% in October from the previous month, as the country’s faltering recovery from the impact of the COVID-19 pandemic dragged into the fourth quarter, official data showed.

“Sharply weaker growth in the coming months should the new variant of the pandemic set the economy back could well exert more downward pressure on inflation than we estimate,” analysts at Societe General wrote in a note.

Data on Thursday showed Mexican inflation in early December had hit its highest level since 2001 at 7.45%, much higher than the central bank target of 3%, with a one percentage point tolerance range above and below that.

MSCI’s index of Latin American currencies (.MILA00000CUS) rose 0.5%, gaining for a third straight session and set to end the week mildly higher on a weaker dollar.

The dollar index was set for its worst week since October, while other risk-friendly assets held onto their recent gains, buoyed by ebbing concerns over the severity of the new COVID-19 variant.

Chile’s peso dropped 0.8% to record its worst week in a month. Markets in the country were hammered earlier this week after leftist Gabriel Boric’s presidential runoff election victory, raising concerns about the outlook for the South American country’s market-oriented economic model.

The currency of the world’s top copper producer has shed roughly 22% versus the dollar this year, while the MSCI’s index of Latin American currencies is down just 4.5%.

The Colombian peso and Peruvian sol firmed around 0.2% each.

Latin American stocks (.MILA00000PUS) gained for the fourth session but were set to end the week lower. Markets in Brazil and Argentina were closed ahead of Christmas holidays.

Key Latin American stock indexes and currencies:

Reporting by Shashank Nayar in Bengaluru; Editing by Andrea Ricci

Our Standards: The Thomson Reuters Trust Principles.