Latin American Currencies Surge on Weakened Dollar

Latin American currencies rose as the US dollar weakened following softer US growth data and a tame reading of the Fed's preferred inflation gauge.

The MSCI's Latin America FX index increased by 1.3% to a two-month high, led by the Colombian peso (up 1.2%) and Chilean peso (about 1%).

Geoff Yu from BNY expects hedge ratios to remain high even after the 1.3% LatAm FX jump.

This means that US-based investors may struggle to hold Latin American local-currency bonds due to high hedging costs, despite higher interest rates in the region.