Bloomberg News

Chile Peso Weakens as European Political Turmoil Boosts Dollar

November 09, 2011

Nov. 9 (Bloomberg) -- Chile’s peso sank as the U.S. dollar strengthened globally on political turmoil in Italy and Greece, the two euro-zone countries with the most debt relative to their income.

The peso weakened for the third time in four days, losing 0.4 percent to 499.72 per dollar. The Bloomberg JPMorgan Latin American Currency Index fell 1.1 percent. The dollar index, a measure of the greenback’s strength against other major currencies, rose 1.1 percent.

The price of copper, Chile’s biggest export, declined the most in a week, the euro slid as much as 2 percent and stocks weakened after yields on Italian bonds soared. Italian Prime Minister Silvio Berlusconi vowed to step down after the approval of an austerity plan to trim the country’s debt and talks on forming an interim Greek government dragged into a third day.

“It’s a response to the external scenario,” said Andres de la Cerda, a trader at Bice Inversiones in Santiago. “It’s hitting all markets and we’re just in the way.”

Copper for December delivery sank as much as 3.1 percent to $3.4235 a pound in New York. One-month Chilean peso non- deliverable forwards fell 0.6 percent to 502.27 per dollar.

The peso will be at 500 per dollar in seven days, three months and 12 months, according to the median forecast of 60 traders and investors in a survey published today by the central bank.

Forwards Market

Offshore investors in the Chilean peso forwards market increased their net long position in the dollar versus the peso to $4.8 billion on Nov. 7 from $4.6 billion on Nov. 4.

Breakeven inflation rates fell and interest-rate swap rates slid. The one-year breakeven inflation rate fell nine basis points to 2.99 percent. The one-year swap rate in pesos fell eight basis points to 4.66 percent.

Interest-rate swap rates reflect traders views of the likely average of future interest rates.

Bus fares in Santiago will rise by 10 pesos (2 cents) later this month, La Tercera reported, citing industry sources it didn’t name.

--Editors: Brendan Walsh, Richard Richtmyer

To contact the reporter on this story: Sebastian Boyd in Santiago at sboyd9@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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