EMERGING MARKETS-Latam currencies weaken on stimulus doubts

by on July 31, 2012 5:23 pm BST

Tue Jul 31, 2012 1:23pm EDT

* Investors second guess ECB, Fed resolve to deploy stimulus
    * Brazil seen not rolling over currency swaps
    * Brazil real down 0.4 pct, Mexico peso falls 0.2 pct

    Rio de Janeiro, July 31 (Reuters) - Latin American
currencies weakened on Tuesday before crucial monetary policy
decisions by U.S. and European policymakers, while the Brazilian
real was pressured by investors betting the central bank would
not roll over swap contracts designed to boost the currency.
    The Mexican peso lost 0.2 percent in cautious trading
as investors questioned the resolve of U.S. and European central
banks to deploy more stimulus measures at the end of their
monetary policy meetings this week.
    Expectations that such measures were in the pipeline drove
risk appetite higher last week, but since Monday investors have
been more cautious. 
    Doubts on whether the European Central Bank would agree on
concrete steps to cut the borrowing costs of Spain and Italy
weighed on European markets on Tuesday. There were also concerns
the U.S. Federal Reserve could hold off bolder stimulus measures
until its September meeting.
    "Investors have been expecting actions by the ECB and the
Fed, but with the latest U.S. economic data coming in line or
better than expected, some are already ruling out measures to
stimulate the economy this week," said Luiz Roberto Monteiro, a
trader with Renascenca brokerage in Sao Paulo.
    The Brazilian real fell 0.4 percent, also pressured
by bets that the central bank would let expire $4.57 billion
worth of swap contracts due on the following day, essentially
reducing the supply of dollars in the futures market.
    "The real would gain if the central bank rolled over those
contracts, so I think it will not do that," said Ovidio Soares,
a trader with Interbolsa brokerage. He noted that Brazilian
policymakers, seeking to protect exporters, do not want the real
to strengthen past 2 per dollar. 
    The real last traded at 2.0463 per greenback, after closing
at 2.0208 on Friday, its strongest level in three weeks.
    Latin American FX prices at 1555 GMT
 Currencies                            daily %     YTD %
                                        change    change
 Brazil real                  2.0463     -0.42     -8.69
 Mexico peso                 13.2901     -0.21      5.11
 Argentina peso*              6.3300      0.63    -25.28
 Chile peso                 482.2500      0.07      7.68
 Colombia peso            1,791.3500     -0.03      8.21
 Peru sol                     2.6280      0.00      2.63
 * Argentine peso's rate between