Latam FX muted as dollar firms on rate hike bets

Jan 4 (Reuters) – Latin American currencies fell on Tuesday on expectations that an ongoing economic recovery would be undeterred by the Omicron COVID-19 variant, and likely spur interest rate hikes in the developed world.

Brazil’s real lost 0.4%, the most among its regional peers, with recent volatility expected to persist. The real continued to pare year-end gains on news about President Jair Bolsonaro’s hospitalization for an intestinal blockage over the weekend.

His medical team said on Tuesday he would not need surgery for the gut obstruction, a complication from a 2018 stabbing. The far-right president plans to stand for re-election in October, in an event highlighted as a source of high volatility for Brazilian markets. read more

In a potential hit to Brazilian meatpackers, U.S. President Joe Biden said new rules would be issued and $1 billion in funding made available this year to support independent U.S. meat processors and ranchers. read more

Brazilian meatpacker JBS (JBSS3.SA), along with National Beef Packing Co, Cargill and Tyson Foods (TSN.N), control 55% to 85% of the market in the hog, cattle and chicken sectors, a White House analysis found. JBS shares were flat.

Broader Latin American currencies were muted as the dollar tracked U.S. Treasury yields higher on expectations that improving economic growth and rising inflation will spur interest rate hikes by the U.S. Federal Reserve.

Early data also suggested that symptoms caused by the Omicron variant were far less severe than its predecessors.

Investors now see the Fed raising rates three times this year, starting in May.

“The environment for EMFX should remain challenging into the first Fed hike. EM rates can decouple from the Fed, if the USD does not strengthen by too much, and U.S. rates do not move in too volatile a fashion, given that some EM central banks front-loaded their hiking cycles versus the Fed,” Citigroup strategists said in a note.

Mexico’s peso was about 1% off two-month highs. December inflation data, due later this week, is likely to show a large jump, and reinforce expectations of more policy tightening by the central bank. read more

Other EM currencies were firmly in the red, with Turkey’s lira down 2.1%, while Russia’s rouble lost 1.6% in its worst day in almost five weeks.

Key Latin American stock indexes and currencies:

Reporting by Susan Mathew in Bengaluru
Editing by Paul Simao and Richard Chang

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