Chilean Peso Climbs to Three-Week High on Spanish Bank Rescue

Chile’s peso strengthened past 500 per dollar for the first time in three weeks after Spain sought a bailout for its banks.

The peso appreciated 0.1 percent to 501.64 per U.S. dollar at 10:51 a.m. in Santiago. It earlier climbed as much as 0.6 percent to 499.13 per U.S. dollar, the strongest since May 16.

Spain asked euro-region governments for as much as 100 billion euros ($126 billion) to help shore up its banking system. The euro rallied as much as 1.2 percent against the dollar to $1.2671 before trading little changed at $1.2528.

“There was a positive start, but as the morning has progressed markets have started to wane,” said Eugenio Cortes, head of currency forwards at EuroAmerica Corredores de Bolsa SA in Santiago. “There may have been an expectation for more than was in the actual announcement.”

The price of copper, Chile’s biggest export, rose as much as 3.5 percent to $3.339 a pound on the Comex in New York after China’s exports gained in May more than economists estimated, bolstering the outlook for demand. China is the biggest buyer of Chile’s copper.

International investors boosted their short peso position in the peso forwards market to a record $10.6 billion on June 7. At the same time local investors cut their long peso position to $17 billion, the lowest since May 16.

The bulk of local investment in the Chilean peso forwards market is from pension funds, which buy peso forwards to hedge the foreign-currency exposure from investments outside Chile.

Lower bets on the peso from both international and local investors meant that Chilean banks and brokers, which are the counterparts for the trades, had their smallest long dollar position in the forwards market since May 2009.

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