Latam FX hits two-week high as markets cheer trade deals

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By Purvi Agarwal and Ragini Mathur An index tracking major Latin American currencies advanced to a two-week high on Wednesday, as risk sentiment improved after the U.S. struck a trade deal with Japan and drew closer towards a similar agreement with the European Union. MSCI's index tracking Latam currencies (.MILA00000CUS) jumped 0.6%, hit a two-week peak and was rising for the fifth consecutive day against a softer dollar. On Tuesday, the U.S. signed a deal with Japan to lower hefty duties on Japanese imports and secured a $550 billion package of U.S.-bound investment and loans from Tokyo. Additionally, on Wednesday, two European Union diplomats said that the bloc is heading towards a trade deal with Washington that would result in a broad 15% tariff on EU's exports to the United States. The deals raised investor expectations that other top trade partners could also secure agreements with the U.S. ahead of the August 1 deadline when the U.S. tariffs are expected to kick in. The Philippines and Indonesia were among the latest emerging market countries to strike deals with the U.S. and investors are also keen on a potential deal with India. "The deal (between the U.S. and Japan) is probably the reason why you're seeing not only the global equity markets rising, but also why some of the more risk-sensitive currencies in Latin America are also performing very well. It's just a broad boost to investor sentiment," said Brendan McKenna, an international economist at Wells Fargo. The trade progress sent ripples of optimism across global markets, with MSCI's global EM stocks gauge CBOE:EFS trading near levels last seen in January 2022. Mexican peso FX_IDC:USDMXN firmed 0.6% against the dollar, while the Colombian peso FX_IDC:USDCOP also gained 0.5%. The Brazilian real FX_IDC:USDBRL strengthened 0.8% after the government eased the total spending curbs previously deemed necessary to comply with fiscal rules as it raised its net revenue forecast by 27.1 billion reais ($4.87 billion) this year. President Luiz Inacio Lula da Silva's administration has been trying to incorporate fiscal discipline ever since investors sold off Brazilian assets last year, making the real one of the worst performers in 2024. Adding to pressures on the country, Trump earlier this month threatened a 50% duty on Brazilian exports to the United States. Mexico also came under fire after Trump announced a 30% levy on its imports. These moves put resource-rich Latin American countries, previously regarded as comparative safe havens, in the crosshairs of Trump's tariff salvo. "The amount of trade deals that the U.S. has secured over the last couple of weeks at least make a U.S.-Mexico trade deal or some type of broader deal, a little bit more possible," McKenna added. On the equities front, the index tracking Latin American stocks (.MILA00000PUS) advanced 1.8% and was set for its biggest one-day gain since May 13. Heavyweight Brazil's Bovespa BMFBOVESPA:IBOV gained 1.11% boosted by a jump in financials stocks. Mexico's America Movil BMV:AMX/B and Banorte BMV:GFNORTE/O added 4.3% and 3.4%, respectively, after their upbeat quarterly results. The telecoms giant and the lender boosted the main stock index BMV:ME , which gained 1.6% Key Latin American stock indexes and currencies: Latin American market prices from Reuters Equities Latest Daily % change MSCI Emerging Markets CBOE:EFS 1267.25 1.54 MSCI LatAm (.MILA00000PUS) 2282.94 1.77 Brazil Bovespa BMFBOVESPA:IBOV 135529.41 1.11 Mexico IPC BMV:ME 56410.08 1.61 Chile IPSA BCS:SP_IPSA 8107.78 -0.14 Argentina Merval BCBA:IMV 2077690.49 3.343 Colombia COLCAP BVC:ICAP 1720.55 -0.41 Currencies Latest Daily % change Brazil real FX_IDC:USDBRL 5.5204 0.8 Mexico peso FX_IDC:USDMXN 18.5306 0.61 Chile peso FX_IDC:USDCLP 948.71 0.02 Colombia peso FX_IDC:USDCOP 4039.5 0.47 Peru sol FX_IDC:USDPEN 3.5538 0.02 Argentina peso (interbank) FX_IDC:USDARS 1258 -0.16 Argentina peso (parallel) (ARSB=) 1290 1.53

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