EMERGING MARKETS-Colombia's peso hits over one-month high, lifting LatAm currencies

By Reuters News

By Sudeshna Ghoshal, Johann M Cherian and Niket Nishant

- Colombia's peso touched its highest in over a month on Monday after a central banker said interest rates in the country may have to stay higher for longer, providing fresh momentum to one of the best-performing regional currencies of the month.

The peso strengthened 0.54% to 3150.25 per dollar, a level not seen since September 17.

Last month, the US Federal Reserve raised interest rates for the first time since 2023. Rate increases by the Fed typically boost the dollar, weakening other currencies by comparison.

Investors also expect at least two more Fed hikes by March 2027, intensifying the hunt for alternatives such as the Colombian peso, which can offer relatively better yields.

"We believe that recent COP weakness may have run its course, and local factors continue to support the currency," HSBC analysts said in a note.

"Colombia's government policies seek to reduce the deficit while encouraging investment, particularly in the hydrocarbon sector. Attractive carry conditions could also support the COP despite rising US yields that are eroding appeal for lower-yielding EM FX."

Late on Friday, Laura Moisa, one of seven policymakers on the board of Colombia's central bank, said inflation is being driven mainly by supply-side shocks, and interest rates will have to remain high for longer.

MSCI's index tracking Latin American currencies .MILA00000CUS rose 0.45%. Mexico's peso and Chile's peso strengthened 0.26% and 0.38%, respectively.

BRAZIL ELECTION KEEPS INVESTORS ON EDGE

With the Brazil presidential runoff less than a week away, the focus on domestic politics sharpened.

Two polls showed Senator Flavio Bolsonaro's lead over President Luiz Inacio Lula da Silva has narrowed, pointing to a close race between the right-wing lawmaker and the leftist incumbent.

Bolsonaro and Lula also traded barbs in their first face-to-face presidential debate on Sunday in a contentious back-and-forth.

The real rose 0.3% to 5.0469 per dollar, while the equity benchmark .BVSP was flat. The country's local assets had rallied after Bolsonaro's strong showing in the first round earlier this month.

MSCI's index tracking Latin American stocks .MILA00000PUS rose 0.2%. Energy giants, however, fell, with Brazil's Petrobras and Argentina's YPF YPFDm.BA down 2.6% and 2.4%, respectively.

Strong growth data out of China also boosted risk sentiment. China is a top importer of resources, including metals and agriculture products from LatAm.

Elsewhere in emerging markets, hard-currency bonds in Ukraine , were down roughly two cents on the dollar as tensions with Russia intensified and soured investors' expectations of a ceasefire.

Hungary's budget will target a much lower deficit of 4.9% of gross domestic product in 2027, Prime Minister Peter Magyar said as he unveiled the government's draft plan, seen as a key credibility test for the country's euro-adoption ambitions. The forint was up 0.1%.

The chief executive of Indonesia's stock exchange .JKSE said it planned to exclude stocks with a large proportion of shares held by a small number of investors from several of its indices, in response to MSCI's warning of a potential downgrade to "frontier" status.

Leaders of the exchange also said they would meet MSCI on Monday for clarification on its statement.

Key Latin American stock indexes and currencies:

Equities

Latest

Daily % change

MSCI Emerging Markets .MSCIEF

1618.96

-0.1

MSCI LatAm .MILA00000PUS

3328.61

0.23

Brazil Bovespa .BVSP

205380.08

-0.02

Mexico IPC .MXX

69145.23

0.31

Chile IPSA .MMXIPSAGC

10972.1

0.02

Colombia COLCAP .COLCAP

2520.51

-1.78

Currencies

Latest

Daily % change

Brazil real

5.0469

0.3

Mexico peso

18.4321

0.26

Chile peso

980.64

0.38

Colombia peso

3150.25

0.54

Peru sol

3.4348

0.04

Argentina peso (interbank)

1524

-0.39

Argentina peso (parallel)

1540

0.97

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