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Chilean Peso Weakens as Copper Declines on European Debt Concern

Chile’s peso posted its longest losing streak in two months on declining copper prices and government calls for the central bank to weaken the currency.

The peso weakened 1 percent to 484.65 per U.S. dollar at the close of trading in Santiago, its third day of declines, the longest stretch since mid-December. The Bloomberg JPMorgan Latin American Currency Index fell 0.5 percent. The currency weakened 1.9 percent in the past three days of trading, more than all emerging-market currencies tracked by Bloomberg after the South African rand.

Copper, which accounts for more than half of Chile’s exports, reached a one-week low today after Moody’s Investors Service cut ratings on six European countries including Italy, damping the outlook for the global economy. Euro area finance ministers are scheduled to meet tomorrow in Brussels to decide on a rescue package for Greece.

Copper is “the biggest driver,” said Clyde Wardle, a currency strategist at HSBC Holdings Plc in New York. “We also had comments that suggested the government is concerned about the strength of the peso.”

The peso is falling from a five-month high reached on Feb. 9, a day before Deputy Finance Minister Julio Dittborn said that the central bank should consider intervening to weaken the currency. The central bank last year intervened to weaken the peso by buying $12 billion for its international reserves. Jaime Troncoso, a central bank press official, declined to comment.

Technical Levels

The peso depreciated through a key technical level yesterday. In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in asset prices.

“The peso yesterday closed weaker than the resistance level at the top of the channel it had been in since Dec. 29, and today that breach has been confirmed,” said Cristian Donoso, a currency trader at Banchile Corredores de Bolsa SA in Santiago.

Offshore investors in the Chilean peso forwards market reduced bets against the currency to $4.6 billion on Feb. 10 from $5 billion on Feb. 9.

Chile’s central bank probably will keep the benchmark interest rate unchanged today after booming retail sales and a decline in the jobless rate reduced the scope for a repeat of last month’s unexpected rate cut.

Policy makers, led by central bank President Rodrigo Vergara, will keep the overnight rate at 5 percent, according to the median estimate of 20 analysts surveyed by Bloomberg. The bank is slated to announce its decision after 6 p.m. local time.

Yields on interest-rate swaps fell ahead of the meeting. The one-year swap rate dropped five basis points, or 0.05 percentage point, to a one-week low of 4.68 percent. The two-year rate fell four basis points to 4.71 percent.

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