Chile Peso Climbs Most in Three Weeks as Europe View Boosts Risk

Chile’s peso, the best-performing emerging-market currency in the last month, rose as optimism that European policy makers will contain the credit crisis lifted demand for the Andean nation’s higher-yielding assets.

The peso jumped 1.2 percent, the most in more than three weeks, to 485.75 per dollar. The Bloomberg JPMorgan Latin American Currency Index rose 0.8 percent.

The euro, often used by traders as a measure of dollar weakness, gained as much as 1.4 percent against the greenback after European Central Bank President Mario Draghi said policy makers are “ready to do whatever it takes” to preserve the currency. Copper, Chile’s top export, rose as much as 1.9 percent in New York. The peso has gained 4.7 percent in the past month, the most among major emerging-market currencies tracked by Bloomberg.

“We have seen it outperform over the past month, and if markets in Europe remain calm it can go lower,” said Alejandro Cuadrado, Latin American foreign exchange strategist at Banco Bilbao Vizcaya Argentaria SA. (BBVA) “We have seen inflows from local and foreign investors. I am still a little skeptical that it can go through 485 to 480 pesos with copper lagging.”

Copper rose 2.1 percent in the past month. Chile’s central bank held interest rates at five percent for six months on faster-than-forecast growth even as inflation slowed. That increases the real return on investing in the peso.

Chilean local investors, mostly pension funds, increased their long peso position in the forwards market to a seven-week high of $17.6 billion on July 24, according to central bank data published today. Chile’s pensions supervisor on June 29 introduced new rules governing how funds must hedge the currency risk of their investments outside Chile. Pension funds hedge dollars by buying pesos in the forwards market.

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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