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Chile Peso Declines as European Concern Spurs Demand for Refuge

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Feb. 4 (Bloomberg) -- Chile’s peso dropped to a two-week low as political turmoil in Spain and Italy spurred demand for a refuge in the dollar.

The peso depreciated 0.3 percent to 473.07 per U.S. dollar at the close in Santiago, its weakest level since Jan. 16. Copper, Chile’s biggest export, fell 0.3 percent in New York after rallying to a four-month high on Feb. 1.

“The peso should maybe have fallen a little bit more, but copper is supporting it,” said Andres de la Cerda, a money-markets trader at Bice Inversiones in Santiago.

Chile’s currency fell as Spain’s Prime Minister Mariano Rajoy faced calls to quit after the newspaper El Pais reported members of his party received illegal payments. The peso also weakened after a poll showed former Italian Prime Minister Silvio Berlusconi narrowed the gap with the frontrunner, Pier Luigi Bersani, before elections.

International investors in the Chilean peso forwards market lowered bets against the currency to $671 million on Jan. 31, from $4.3 billion a month earlier. Local investors, excluding banks, had a $12 billion long peso position, down from $14 billion at the end of December. A long is a bet an asset will gain value.

Local market participants expect the central bank will intervene to weaken the currency should it appreciate beyond 470 per dollar, while international investors are less concerned, said Eugenio Cortes, the head of currency forwards at EuroAmerica Corredores de Bolsa SA in Santiago.

The central bank last intervened in the currency market in 2011, buying $12 billion of U.S. dollars to weaken the peso.

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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