Latam FX Firms as Ceasefire Reports Boost Risk Appetite, Then Fade on Mixed Signals

Most Latin American currencies rose on Monday while local equity markets produced a mixed picture after reports that Pakistan had drawn up a framework to end hostilities between the U.S. and Iran helped revive risk appetite among traders returning from a long holiday weekend.

The proposed framework was reportedly exchanged with Iran and the U.S. overnight, according to a source aware of the proposals. That development initially supported a move into riskier assets, but some of the rally moderated after Iran’s official IRNA news agency reported that Iran had conveyed its response and was rejecting the ceasefire, stressing the need for a permanent end to the war.

Separately, a White House official said the U.S. president is scheduled to address the ceasefire proposal at a 1 p.m. ET (1800 GMT) press conference. The president has indicated that a Tuesday deadline he set for Iran to make a deal is final.

Market strategists highlighted the wider implications of the Middle East tensions for energy markets and financial volatility. "Geopolitical tensions around Iran and the Strait of Hormuz are driving energy supply disruptions, market volatility and urgent diplomatic efforts, with ceasefire talks offering limited near-term clarity," said Bob Savage, head of markets macro strategy at BNY.

Trading resumed in most Latin American markets after a Good Friday holiday, and most regional currencies strengthened against a broadly softer dollar. The Mexican peso led regional gains, advancing 0.4% to reach its strongest level in more than 10 days, while the Brazilian real inched up 0.1%.

Peru’s sol rose 0.8% in relatively light trade as investors awaited a local interest rate decision later in the week, where the central bank is widely expected to keep its policy rate unchanged.

The conflict in the Middle East has contributed to shifts in global interest rate expectations, leaving Latin America with a mixed policy landscape as central bankers weigh uncertainty. Minutes from Chile’s March central bank meeting showed that officials briefly discussed the option of hiking rates because of geopolitical risks. By contrast, Brazil’s central bank lowered rates at its March meeting, and Mexico’s central bank had loosened policy at its most recent meeting.

However, a poll of foreign exchange strategists found that the region’s leading currencies are forecast to weaken in April as policymakers adopt a more defensive stance against potential economic disruptions tied to the U.S.-Israeli war on Iran.

On the equities front, local stock exchanges produced mixed results, though the MSCI index tracking regional stocks rose 0.1%.

In corporate news, a media report indicated that Braskem Idesa, the joint venture between Brazil’s Braskem and Mexico’s Grupo Idesa, is preparing to file for Chapter 11 bankruptcy protection in the United States as early as next week.

Investors are also watching a slate of inflation releases due later this week in Brazil, Mexico and the United States that could further influence market direction and policy expectations.

HIGHLIGHTS

• Bolivia to eliminate tax on financial transactions, restore tax credit for fuel purchases
• Iraq could restore oil exports to pre-war level within a week if Hormuz reopens, Basra Oil chief says
• Colombia finance minister says 3% inflation target should be reviewed

Key Latin American stock indexes and currencies

Note: Trading resumed in most regional markets after the Good Friday holiday. Market participants are closely monitoring geopolitical developments and upcoming inflation data.