Peru’s sol dropped to its weakest level since May 2011, prompting the central bank to intervene to bolster the currency.
The sol depreciated 0.3 percent to 2.7990 per U.S. dollar at today’s close on speculation the Federal Reserve will reduce stimulus measures that have boosted emerging-market assets. The currency extended its decline this year to 8.7 percent, according to prices from Datatec. The difference in yields on U.S. Treasury five- and 10-year securities was the widest in almost two years.
With longer-term “Treasury yields gradually climbing, we’ve seen clients moving to more liquid markets,” Alejandro Cuadrado, the head of Latin American currency strategy at Banco Bilbao Vizcaya Argentaria SA, said in a phone interview from New York. “People have been dropping out of the sol trade.”
Banco Central de Reserva del Peru sold $10 million of U.S. currency in the foreign-exchange market today to stem the sol’s decline, extending its sales since July 2 to $580 million.
The bank also sold 90 million soles in dollar-linked certificates of deposit, according to its website. Earlier today, it offered 300 million soles of the securities, which are due in two months and were priced to yield 0.25 percent.
The yield on Peru’s benchmark 7.84 percent sol bond due in August 2020 increased eight basis points, or 0.08 percentage point, to 5.05 percent at 3:20 p.m. in Lima, according to data compiled by Bloomberg. The price fell 0.49 centimo to 116.23 centimos per sol.