EMERGING MARKETS-Interest rate jitters, recession worries crush Latam FX


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Downturn in Eurozone business activity fuels growth fears

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Brazil Real, Chilean Peso Down More Than 2%

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sell-off of stocks; Brazil down 2.7%, Argentinian stocks down 4.2%

(Continuously new, updates prices, market activity and comments)

By Amruta Khandekar and Susan Mathew

Sep 23 (Reuters) – The Brazilian real and Chilean peso each fell over 2.5% on Friday, prompting a sell-off in emerging market currencies as fears of a global recession gripped investors Safe-haven dollar surged to 22-year highs.

The data showed a slowdown in business activity across the euro zone and the UK, stoking fears of a global economic slowdown on the heels of rate hikes and further hints from the Federal Reserve and other central banks this week.

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Risk-off sentiment led to a sell-off in the Brazilian real a day after the central bank intervened to prop up the currency, selling $2 billion in the spot market in a buyback deal. The real was on track for its sharpest daily decline in five months.

Crude oil and metals prices slipped on concerns over weaker demand. The Mexican currency fell 1.2% and the Colombian 1.7%. Leading copper exporter Chile’s peso marked its third consecutive week in the red.

“Over the next few weeks, long-term investors may be reluctant to buy into weakness as it doesn’t look like any economic data release or Fed speech will convince markets that any downside from this aggressive tightening campaign is on the horizon anytime soon said Edward Moya, Senior Markets Analyst, Americas at Oanda.

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Latin American currencies have outperformed their broader emerging market counterparts as regional central banks started their tightening cycles early and grew big to stay ahead of the Fed.

Regional assets also benefited from the rise in commodity prices earlier in the year. The Brazilian real has seen volatility ahead of the October elections but is still up 6% for the year.

“[Brazil’s]tax revenues have continued to surprise on the upside over the past 12 months,” said Elizabeth Johnson, managing director of Brazil research at TS Lombard.

“The outlook for 2023 remains much more challenging, mainly because of the massive increase in election-related government spending,” she warned.

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Among stocks, Argentina’s main index plunged 4.2%, while Colombia’s COLCAP lost 3.4%. Brazilian and Mexican indices each lost well over 2%.

After a week full of central banks, investors will await further decisions next week, including monetary authorities in Hungary, Mexico and Colombia, with all rate hikes expected.

In Colombia, analysts are divided, with eight of the 17 analysts polled forecasting a 100 basis point hike and lifting interest rates to 10%, while another eight expect a 150 basis point hike. (Reporting by Amruta Khandekar and Susan Mathew; Editing by Andrea Ricci and David Gregorio)



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