Chilean Peso Posts Worst Emerging-Market Drop on Fed Speculation

Chile’s peso plunged to a one-year low and swap rates surged after Federal Reserve Chairman Ben S. Bernanke said policy makers may begin scaling back U.S. monetary stimulus this year.

The peso dropped 2.6 percent to 512.85 per dollar at 9:57 a.m. in Santiago, the steepest sell-off since September 2011. The two-year swap rate rose 11 basis points to 4.81 percent.

Chile’s peso, which closed in local market trading yesterday before Bernanke’s statement, led declines among emerging-market currencies today as copper, the country’s main export, plunged as much as 2.8 percent. Bernanke said yesterday that the Fed may begin to phase out this year the bond-buying program that has injected cash into the U.S. economy and fueled demand for emerging-market assets.

“Bernanke clarified that the stimulus will clearly end by mid-2014,” said Eugenio Cortes, head of currency forwards at EuroAmerica Corredores de Bolsa SA in Santiago. “The market is pricing that in and it’s hitting everything, especially in emerging markets.”

Forward points, which measure the gap between the spot peso price and prices in the non-deliverable forwards market jumped higher today. The three-month forward point rose to 7.35 pesos per dollar, the highest since January 2009.

Foreign investors in the Chilean peso forwards market had a $13.4 billion net short peso position on June 18, an increase from $13 billion a day earlier, according to central bank data published today.

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