Chile Peso Falls After Reversing Direction on Bernanke Remarks

Chile’s peso weakened, reversing an earlier gain, after Federal Reserve Chairman Ben S. Bernanke said the Fed’s current stance is in line with its goals, damping speculation of further stimulus and pushing up the dollar.

The peso weakened 0.6 percent to 479.48 per U.S. dollar at the 1:30 p.m. close in Santiago. The currency earlier reached a 20-day high of 474.89 per U.S. dollar.

Bernanke told the U.S. Congress that keeping monetary stimulus is warranted in remarks interpreted as damping speculation of more quantitative easing to bolster the world’s biggest economy. Chile’s largest export, copper, slid as did the euro and global stocks.

“All the optimism that had been in the market earlier today ended,” said Andres de la Cerda, a money markets trader at Bice Inversiones in Santiago. “Stocks fell, futures fell, the euro fell, all on Bernanke’s comments.”

Copper for May delivery declined as much as 3 percent on the Comex in New York to $3.805 a pound after gaining 1 percent.

The U.S. economy grew at a revised annual pace of 3 percent in the fourth quarter of last year, more than forecast. The Dow Jones Industrial Average (INDU) yesterday closed above 13,000 for the first time since May 2008, the U.S. jobless rate has fallen to the lowest since February 2009 and the Conference Board said its gauge of consumer sentiment is at the highest level in a year.

Offshore investors in the Chilean peso forwards market reduced their short position in the peso to $4.4 billion on Feb. 27 from $4.7 billion on Feb. 24.

Swaps Fall

Chilean interest-rate swaps fell today after publication of minutes from the central banks last meeting that showed the bank is still considering rate cuts in the future. The two-year swap rate fell three basis points, or 0.03 percentage point, to 5.05 percent, its first decline in a week. The six-month rate fell three basis points to 4.90 percent. The rates measure the cost of swapping a floating interest rate for a fixed rate and reflect expectations for average future central bank rates.

Data published by the National Statistics Institute showed that retail sales grew 6.3 percent in the 12 months through January, the slowest since November 2009 and less than the 9 percent median forecast of 11 economists in a Bloomberg survey.

“It’s still a pretty good pace, but it’s a sharp deceleration,” said Benjamin Sierra, an economist at Scotiabank Chile in Santiago. “The jobs market isn’t getting tighter and the rate of job creation is decelerating. Are we in a soft patch or is this a change of trend? That’s a question the central bank will be looking at carefully.”

To contact the reporter on this story: Sebastian Boyd in Santiago at sboyd9@bloomberg.net

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

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