Latam FX Starts December Lower; Brazil Real Continues Slide
Most Latin American currencies started the last month of the year on a less hopeful note on Monday, as the Brazilian real continued its downward slide following a fiscal package that fell short of market expectations. The real dropped 1.6% against the U.S. dollar to reach 6.06, close to record lows from Friday. This led to a 0.1% decrease in the local benchmark equities index.
Last week, the country’s anticipated fiscal package—including a tax exemption—was announced but did not meet investor expectations, causing a sell-off. Despite the central bank raising interest rates, concerns about fiscal instability weighed on the real.
The deputy finance minister said the government plans to address corporate income tax reform in 2025, part of broader discussions. Strategists at Macquarie said they expect the central bank to continue raising rates in the coming months to support the real amid fiscal worries.
Brazil’s incoming central bank chief also emphasized the need for high-interest rates in the current economic scenario. MSCI’s Latin American currencies index fell 1.2%, along with a 1% drop in the stocks index.
Further affecting sentiment, U.S. President-elect Donald Trump called on BRICS nations—Brazil included—to refrain from creating alternative currencies, threatening 100% tariffs otherwise. The Mexican peso saw improvements after hitting session lows, while Mexico’s economic calendar this week is relatively light.
Chile and Peru, key copper exporters, saw currency weakening due to slipping metal prices. In Chile, economic activity grew 2.3% year-over-year in October, slightly below expectations. Elsewhere, Argentina’s Merval index gained 1.6%, and Chile’s stocks added 0.9%.
Overall market conditions in Latin America remain dynamic, with investors watching closely for developments in various sectors.
