Chilean Currency Drops to 14-Month Low on Fed Stimulus Concern

Chile’s peso declined to a 14-month low amid speculation that the U.S. Federal Reserve will slow stimulus this year.

The currency depreciated 0.1 percent to 515.46 per U.S. dollar at the close in Santiago, the weakest level since June 2012. The peso touched a level weaker than 800 per pound for the first time since June 2012.

“Economists may differ on when the stimulus will end, but sooner or later it’s ending, which means the dollar is gaining against emerging-market currencies,” Eugenio Cortes, the head of currency forwards at EuroAmerica Corredores de Bolsa SA in Santiago, said in a phone interview. “The trend is for depreciation.”

U.S. Treasury 10-year note yields climbed 0.82 percentage points in the past three months while Chilean yields were little changed, eroding the profit from borrowing in dollars and investing in pesos. Cleveland Fed President Sandra Pianalto said today a tapering of the U.S. central bank’s stimulus may be warranted if the labor market continues to strengthen.

Chile’s central bank will cut its target lending rate by a quarter-percentage point to 4.75 percent on Aug. 13, according to the median forecast of economists surveyed by Bloomberg. A reduction would be the first since January 2012.

Chile sold $3.35 billion of copper in July, the lowest level since March. The metal made up 52 percent of the country’s exports last month. The nation posted a $254 million trade deficit in July, the biggest since October 2012.

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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