EMERGING MARKETS-LatAm FX slides as dollar nears two-month high; stocks mixed

By Utkarsh Hathi

Sept 23 (Reuters) - Most Latin American currencies fell more than 1% against the US dollar on Wednesday as the greenback rallied to a near two-month high on expectations the Federal Reserve will raise interest rates further, while weaker metal prices weighed on equities.

The dollar index rose 0.48% to its highest since 29 July, buoyed by the Fed's rate hike last week — its first since 2023 — and signals of more increases ahead. The unresolved Middle East conflict and elevated oil prices have also supported the safe-haven asset.

"The Fed seems to have a unanimous consensus that moving forward, the best thing to do is to hike rates again. That alone is what's really pushing the dollar higher against everyone else," said Juan Perez, director of trading at Monex.

Investors also monitored geopolitical developments. Iranian foreign minister Abbas Araqchi communicated with US envoys through mediators on the sidelines of the UN General Assembly in New York, while Chinese President Xi Jinping was due in Washington on Wednesday ahead of a state visit and bilateral talks with President Donald Trump on Thursday.

MSCI's index tracking Latin American currencies .MILA00000CUS slipped 0.96%, with the Colombian peso dropping 1.95% to more than a two-month low.

While the currency has been the best performer among its peers since the start of 2025, investors fear a hawkish Fed could weigh heavily on the peso given Colombia's focus on economic recovery and need for spending following a recent earthquake.

"If indeed the Fed accelerates the pace of hiking, that's eventually going to hurt the Colombian peso in a big way, because based on the earthquake and needing to spend money in economic recovery, they don't want to raise rates a whole lot," added Perez.

The high yielding Brazilian real slipped 1%. Traders are cautious to put faith into the region's assets given the uncertainty around the outcome of next month's presidential election.

Brazil's central bank monetary policy director Nilton David said monetary policy has been producing the intended effects and that the best response to the current uncertainty was to pursue smooth and predictable interest rate moves.

The Mexican peso dropped 1.2% to a two-month low, while the Chilean peso fell 1.6%.

MSCI's index tracking the region's equities .MILA00000PUS fell 0.9%, as weaker gold and copper prices weighed on mining companies.

The Peruvian sol was little changed, and the benchmark stock index .MXNUAMPESCPGPE fell 0.7%, tracking lower precious metal prices.

Oil prices held firm near two-week lows, and were trading 3.4% up at $102.62 a barrel, recovering from early session losses.

Bucking the trend, Brazilian energy giant Petrobras rose 3.1%. The broader Ibovespa index .BVSP was muted, while the Colombian benchmark .COLCAP gained 0.8%, supported by a 1.1% rise in Ecopetrol ECOPETROL.CN.

The U.S. Export-Import Bank plans to finance up to $7 billion in critical minerals and energy projects in Argentina as Washington seeks to deepen economic ties with Buenos Aires.

Elsewhere in emerging markets, South Africa's central bank raised its benchmark rates by 25 basis points to steer inflation towards its 3% target.

Key Latin American stock indexes and currencies at 14:44