Chile’s peso, the strongest emerging market currency this year, trimmed that gain today after the U.S. Federal Reserve said it may stop buying bonds this year.
The peso weakened 0.2 percent to 473.4 per U.S. dollar as of 10:20 a.m. in Santiago. It closed yesterday at a six-week high of 472.6 per dollar.
Fed officials said they will probably end their $85 billion monthly bond-purchase program sometime this year, minutes of a December policy meeting released yesterday showed. The comments boosted the dollar and undercut commodities including copper, Chile’s biggest export. Copper for March delivery fell the most in two weeks, dropping as much as 1.2 percent to $3.671 a pound.
“The fact that the Federal Reserve is considering withdrawing the stimulus changes market expectations,” said Patricio Aliaga, a trader at the Santiago unit of Bank of Nova Scotia. “We should see a floor for the dollar and with this kind of noise going on, the dollar could appreciate against its traditional benchmarks and recover its lost ground.”
International investors in the Chilean peso forwards market cut their net short position to a 13-month low of $4 billion on Jan. 2, according to data published today by the central bank.
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