Chile Peso Strengthens as Fed Stimulus Speculation Lifts Copper

Chile’s peso gained as speculation the Federal Reserve will maintain its bond-buying program into 2014 to boost the world’s largest economy lifted the price of copper, the Andean country’s biggest export.

The peso appreciated 0.1 percent to 471.24 per U.S. dollar at the close in Santiago as copper headed for a three-month high in New York. Chile’s currency has strengthened 1.7 percent this month, the best performance among the six most-traded peers in Latin America after Brazil’s real.

The U.S. central bank said today at the conclusion of a two-day meeting that the economy paused because of temporary forces including bad weather. The peso’s appreciation is being limited by concern Chile’s central bank may take steps to slow its rally should it pass 470 per dollar, said Cristian Donoso, a trader at Banchile Corredores de Bolsa SA in Santiago.

“What stops the appreciation is the ghost of the central bank below 470 per dollar,” Donoso said in a telephone interview. “At that level, there’s a lot more interest in buying dollars again.”

The peso closed at its strongest against the yen since September 2008. The euro, used by traders as an indicator of the weakness of the dollar, rose past $1.35 for the first time since 2011 and reached a seven-month high of 639.63 pesos.

Economic confidence in the euro area rose in January more than economists forecast, adding to signs that the 17-nation currency bloc may be emerging from a slump.

Inflation Outlook

Inflation may slow to 1.18 percent in February before accelerating to 2.83 percent at the end of the year, according to traders in the forwards market for unidades de fomento, Chile’s index-linked accounting unit.

Slowing inflation in Chile means the probability the central bank will raise interest rates before the end of September is “vanishingly small,” according to Societe Generale SA strategist Eamon Aghdasi in New York.

One-year swap rates rose one basis point, or 0.01 percentage point, to 5.2 percent. Societe Generale recommends investors bet that the rates will fall versus their Mexican equivalents.

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