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Chile Peso Falls, Trimming Weekly Gain, as Euro, Copper Decline

Chile’s peso fell for a second day as copper, the country’s biggest export, extended losses and the euro declined.

The peso weakened 0.8 percent to 534.9 per U.S. dollar from 530.58 yesterday, reducing a weekly gain to 0.4 percent.

Copper fell in New York and London, heading for a weekly decline, after data raised concerns the U.S. economic recovery may be weaker than expected. Chile’s peso has depreciated in the two days since the Federal Reserve Bank of Philadelphia’s general economic index dropped to a 10-month low of 8, less than half the median estimate in a Bloomberg survey.

“It’s tracking the euro, which is weakening as well, and commodity prices are going down, including copper,” said Cesar Perez, an economist at Celfin Capital SA in Santiago.

The peso rallied earlier this week after Moody’s Investors Service upgraded Chile’s debt and the central bank raised interest rates to 1 percent, matching the forecasts of just 4 of 24 economists surveyed by Bloomberg. Eighteen analysts predicted a quarter-point increase while two forecast no change.

Rates of short-dated interest-rate swaps increased as traders continued to price in expectations of higher average rates in the future. The three-month rate in pesos rose 4 basis points, or 0.04 percentage point, to 1.48 percent. The six-month rate rose 10 basis points to 2.12 percent, after the biggest weekly gain since July 2008. The rate reflects traders’ expectations of the average annual interest rate over the life of the contract.

The peso also weakened as traders put on carry trades, borrowing in Chile to lend in countries with higher interest rates such as Brazil, amid greater appetite for risk by investors worldwide, said Luis Morales, a currency trader at BCI Corredor de Bolsa in Santiago. Brazil’s real strengthened 0.5 percent 1.7714 per dollar today. Brazil’s central bank raised its benchmark interest rate this month to 10.25 percent.

“There are people putting on carry trades,” Morales said. “There was a long time when there was no appetite for risk. It’s now appearing again and that has helped the dollar strengthen against several currencies with low interest rates.”

Chile’s peso strengthened through 530 per dollar yesterday before sliding back. That’s “a strong floor and it didn’t break though convincingly,” Morales said. “The peso will be in a range of between 530 and 540 for a while,” he said.

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