(Bloomberg) The Peruvian sun follows the general sense of risk after President Pedro Castillo survived a second vacancy motion. Traders are also watching peace negotiations between Russia and Ukraine, as they await the rate decision by the Central Bank of Chile following the closing of the local market on Tuesday.
The Chilean peso rose 0.2%, a slight gain compared to other emerging market currencies, as investors remain on the sidelines in the face of a lack of clarity on how much the central bank will increase the monetary policy rate in a decision scheduled for 5 p.m. Eastern time. The agency is expected to be very aggressive amid a very different scenario than the last January decision.
The main question is how big the rate increase should be to take account of the war in Ukraine, the rise in commodity prices and the consequent risks to inflation. Analysts are divided by increases of 150, 175 and 200 basis points, while traders don't even rule out an increase of more than 200 points. It will be the first decision of a council with new members following the incorporation of Rosanna Costa as president and Pablo García as vice president of the entity.
The Peruvian sol, meanwhile, gained 0.3%, more or less in line with its peers after President Pedro Castillo survived a new impeachment attempt, as operators expected. Peru's president escaped being removed for the second time in eight months after only 55 of the 128 legislators voted in favor of the motion, a far cry from the minimum of 87 required for it to succeed.
Peruvian markets have been optimistic throughout the process, as it was always felt that the opposition was unlikely to win the necessary votes. Peruvian sol traders estimate that 3,6680, the year-to-date high, is the most immediate support for the dollar should it continue to rise.
The Colombian peso, for its part, was advancing 0.7% despite the 3.5% drop in oil in London. The intraday correlation between the peso and Colombia's main export product has been reduced due to intense volatility in the commodity market.
The sentiment of risk is driving Latin American currencies along with most risky assets because of optimism that progress will be made in the ceasefire negotiations in Ukraine, after Russia said it was taking steps for a “de-escalation” of the conflict. Equities in Europe rose more than 2%, while the dollar weakens globally.
Colombia's presidential candidates will participate in a new debate, while Gustavo Petro remains the favorite to win the race in May.
(Some of the information comes from FX traders familiar with the transactions who asked not to be identified because they are not allowed to speak publicly.)
Original Note:
Chile Rate Decision, Castillo Escapes Impeachment: Inside Andes
Davison Santana is an FX strategist who writes for Bloomberg. The observations he makes are his own and are not intended to be investment advice.
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