Latin American currencies edge up for third day as dollar recedes

Latin American currencies advanced for their third straight session on Thursday, buoyed by a weaker dollar, but global recession worries limited gains.

The MSCI's index for Latin American currencies (.MILA00000CUS) inched 0.3% up against a soft dollar.

Currencies in Latin America have outperformed their emerging market peers so far this year, adding 14.8% compared to the 5% slide in MSCI's index for EM currencies (.MIEM00000CUS) in 2022.

"Although inflation has picked up in Latam just like the rest of the world, the consequence of the early move means that real interest rates are positive or only slightly negative, amounting to a real difference compared to the degree of negative real rates we’re seeing across developed economies," said Josh Rubin, portfolio manager at Thornburg Investment Management.

Brazil's real USDBRL, <BRBY> slipped 0.1% against the dollar on Thursday after two straight sessions of gains.

Brazil's President-elect Luiz Inacio Lula da Silva is expected to start announcing some members of his Cabinet on Friday, said the head of his Workers Party (PT), amid speculation about key ministerial appointments.

The Senate approved on Wednesday a constitutional amendment to increase the government spending cap, raising it by 145 billion reais ($27.8 billion) for each year, lesser than the 175 billion reais initially proposed.

Late on Wednesday, Brazil's central bank held its key rate at 13.75%, as expected.

Peruvian and Chilean markets were closed for a local holiday.

The Peruvian sol USDPEN slumped on Wednesday after President Pedro Castillo was impeached and Vice President Dina Boluarte was sworn in.

"The lack of any true leader makes for more headwinds to come short-term and volatility too high to make any strong forecast," said Juan Perez, director of trading at Monex USA.

The Mexican peso USDMXN rose 0.3% after data showed annual consumer prices rose 7.8% in the year through November, slowing down from the previous month to reach its lowest level since May.

Following the data, Capital Economics now expects Mexico's central bank to deliver a 50 basis points increase in interest rates this month followed by a final 25bps hike to 10.75% in February.

Colombia's peso inched 0.1% higher.

Elsewhere in emerging markets, the Polish zloty EURPLN gave up earlier gains and slipped against the euro.

The central bank on Wednesday left the policy rate unchanged at 6.75% for the third month in a row. Governor Adam Glapinski said inflation was expected to start declining in March or April but that policy would stay conservative.

Key Latin American stock indexes and currencies: