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Chilean Peso Rises to Two-Month High as Investors Cut Short Bets

Jan. 3 (Bloomberg) -- Chile’s peso rallied to a two-month high as foreign investors cut bets against the currency to the lowest since February.

The peso climbed 0.4 percent to 472.60 per dollar at the close in Santiago, the strongest since Oct. 17. Its gain was the biggest among 25 emerging-market currencies.

Offshore investors reduced net bets against the peso in the forwards market by $757 million to $4.2 billion on Dec. 28, according to the data published today by the central bank. It was the biggest drop in five weeks. The bets are down from $7.2 billion at the end of November.

Traders are starting to project increases in interest rates because of the country’s faster-than-forecast growth and deepening current-account deficit. The so-called carry trade, in which investors borrow in dollars and invest in pesos, is driving the price moves, said Felipe Alarcon, an economist at Banco de Credito & Inversiones in Santiago.

Local investors in the forwards market cut their net long peso positions to a two-month low of $14 billion on Dec. 28 from $16.6 billion at the end of November. The local investors category is dominated by pension funds that use long peso positions to hedge the currency exposure in their offshore investments. A long is a bet an asset may gain value.

Lower bets on the peso in the local market may indicate that pension funds reduced investments in other currencies toward the end of the year.

Traders in Chile’s swaps market projected yesterday a 0.25 percentage point rate increase in the benchmark overnight rate to 5.25 percent in the next six months and a 0.50 percentage point boost in 18 months.

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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