Peru's Sol Posts the Biggest Weekly Gain Since August on Fed Stimulus Plan

Peru’s sol had its biggest weekly rise since August as the Federal Reserve’s measures to boost the U.S. economy lifted commodity prices and fueled demand for higher-yielding, emerging-market currencies.

The sol strengthened 0.2 percent to 2.7925 per U.S. dollar at 3:06 p.m. New York time, from 2.7985 on Oct. 29. The currency gained 0.1 percent today. It increased 0.7 percent during the week ended Aug. 6.

The Fed’s plan to buy an additional $600 billion of Treasuries to boost liquidity has weakened the dollar and boosted demand prospects for commodities, which account for three quarters of Peru’s exports, said Mike Moran, a currency strategist at Standard Chartered Bank in New York. Prices for copper and gold, Peru’s top exports, rose.

“We are edging back towards this weak-dollar environment, at least for the next month,” Moran said.

Peruvian policy makers are “tinkering” with administrative measures to stem a possible surge in dollar inflows as investors seek higher yields in fast-growing economies, Moran said. The measures are likely to prevent the sol from strengthening beyond 2.78 per dollar this year, he said.

‘Hard to Break’

“They’re going to experiment. They’re going to tinker to get the right blend,” Moran said. “Around 2.78 will be very hard to break.”

Peru’s central bank began issuing certificates of deposit redeemable in dollars last month to give investors a way to benefit from higher interest rates without fueling demand for the sol. The bank sold 320 million soles ($114.6 million) of three-month certificates this week, including 150 million soles today.

The bank has bought almost $9 billion this year in the foreign exchange market to ease gains in the sol. It hasn’t bought dollars since it began issuing the new securities on Oct. 20. The currency has strengthened 3.4 percent this year.

The banking regulator will introduce a cap on local banks’ dollar forward holdings this month to stem foreign inflows and limit currency volatility, Bank Superintendent Felipe Tam Fox said last week.

The yield on Peru’s benchmark 8.6 percent sol-denominated bond due August 2017 rose 5 basis points, or 0.05 percentage point, today to 4.83 percent, according to Deutsche Bank AG’s local unit.

To contact the reporter on this story: John Quigley in Lima at jquigley8@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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