*
Mexican peso leads quarterly gains across Latam
*
MSCI Latam FX index up 8% in Q1 vs. 2% gain in EMFX
*
Peru's sol lags broader Latam gains in quarter
By Shreyashi Sanyal March 31 (Reuters) - Most major Latin American currencies strengthened on Friday as the dollar pared back gains as U.S. inflation showed signs of cooling, with the MSCI's index heading for its best quarterly performance in a year.
The MSCI's index for Latin American currencies rose 0.6%, tracking gains of nearly 8% for the quarter given their high yielding nature and the reopening of China, a crucial trading partner for the region.
The MSCI's broader EM currencies index was set to rise about 2% for the first quarter.
Among Latam currencies, the Mexican peso was the biggest gainer in the first three months of the year, jumping nearly 8% and set for its best quarter since December 2020.
"People are more willing to add risk into emerging markets when the global backdrop is favorable for emerging markets, which typically coincides with a weaker dollar and they choose countries with a relatively quiet political story and high carry," said Claudio Irigoyen, head of Latin American economics, equities, fixed income & FX strategy research at Bank of America.
"The currency that has been outperforming the rest because it checks all the boxes, is the Mexican peso." A carry trade is a trading strategy that involves borrowing at a low interest rate and investing in an asset that provides a higher rate of return. Brazil's real firmed 0.6%, and was up 4% for the quarter. Its finance ministry on Thursday unveiled a much awaited proposal for new fiscal rules to balance limits on spending growth with the government's vow to boost social programs and public investment.
But markets remained skeptical of Brazil's new spending plans.
"The new fiscal rule proposed today by Brazil’s finance minister would, if implemented in full, go some way towards stabilising the public debt ratio," said William Jackson, chief emerging markets economist at Capital Economics.
"But the government has a lot to do convince investors that it can credibly commit to the fiscal tightening needed to meet its targets." Helping boost currencies on the day was a weaker dollar as data showed U.S. personal consumption expenditure growth slowed in February, supporting hopes of a softer monetary policy approach from the Federal Reserve. Currencies of top copper producers Chile and Peru rose about 0.3% each. Chile's peso added 7.5% in the first three months of the year as the demand outlook from top copper consumer China showed signs of improvement.
Political turmoil and civil unrest since the start of the year have hindered gains for Peru's sol during the quarter, up about 1.2%.
Key Latin American stock indexes and currencies at 1448 GMT:
Stock indexes Latest Daily
%
change
MSCI Emerging Markets 991.27 0.56
MSCI LatAm 2222.04 0.8
Brazil Bovespa 103267.0 -0.43
1
Mexico IPC 54392.90 0.36
Chile IPSA 5318.93 0.18
Argentina MerVal 254654.8 1.198
2
Colombia COLCAP 1157.01 0.93
Currencies Latest Daily
%
change
Brazil real 5.0689 0.56
Mexico peso 18.0106 0.36
Chile peso 787.9 0.16
Colombia peso 4644.81 -0.16
Peru sol 3.7568 -0.22
Argentina peso (interbank) 208.9800 -0.19
Argentina peso (parallel) 389 1.03
(Reporting by Shreyashi Sanyal and Shashwat Chauhan in
Bengaluru
Editing by Mark Potter)
