Latin American Currencies Depreciate to Lowest Level Since 2003

Latin American currencies fell, sending an index tracking the region’s foreign-exchange rates to the lowest since 2003, as manufacturing gauges declined in China and the U.S., the region’s biggest trading partners.

The Bloomberg JP Morgan Latin America Currency Index, which tracks the region’s six most-traded currencies including Brazil’s real and Mexico’s peso, fell 1 percent to 89.39 as of 3 p.m. in New York, the lowest closing level since March 2003. Colombia’s peso sank 1.5 percent, while Mexico’s currency fell 1.3 percent.

Latin American currencies weakened after separate reports showed that U.S. manufacturing output expanded in January at the slowest pace since May and China’s official Purchasing Managers’ Index decreased to a six-month low. Commodities, the region’s main exports, declined as signs that global economic growth is slowing compounded concern that the Federal Reserve’s reduction of U.S. monetary stimulus may encourage investors to remove money from developing-market assets.

“Investors continue to leave emerging markets, and Latin America stands out in that move today,” Eduardo Suarez, Latin America currency strategist at Bank of Nova Scotia, said by phone from Toronto. “You have significant exposure to commodities in the region, and U.S. tapering is something that has started and is a process that will take a while.”

Fifteen of 24 emerging-market currencies tracked by Bloomberg declined today. The Standard & Poor’s GSCI index of 24 commodities fell 0.5 percent, extending its decline over the past year to 8.1 percent.

Manufacturing Reports

The Institute for Supply Management’s U.S. factory index decreased to 51.3, lower than the most pessimistic forecast in a Bloomberg survey of economists, from 56.5 the prior month, the Tempe, Arizona-based group’s report showed today. The Chinese Purchasing Managers’ Index was at 50.5, the National Bureau of Statistics and China Federation of Logistics and Purchasing said in Beijing.

The Bloomberg JP Morgan Latin America Currency Index has lost 5.3 percent this year as Argentina allowed its currency to devalue 19 percent to preserve foreign reserves. The Argentina peso accounted for 10 percent of the index, while the real and Mexican peso each comprised 33 percent. The Chilean and Colombian pesos and Peruvian sol made up the balance.

Colombia’s peso fell the most in emerging markets today after central bank Governor Jose Dario Uribe said a weakening currency is “positive.” The peso depreciated to 2,046.64 per dollar at the close in Bogota, the lowest level since December 2009. It has lost 5.7 percent this year.

Colombia has an “enormous” margin for the peso to weaken before posing a threat to the bank’s inflation target, Uribe told reporters Jan. 31 after announcing the bank’s board voted unanimously to leave the overnight lending rate unchanged at 3.25 percent.

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