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The Mexican peso eked out gains

against the dollar in holiday-thinned trading on Friday but was

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set for its best year since 2017, boosted by sharp interest rate

hikes and surging commodity prices that have buoyed Latin

American assets overall.

The peso rose 0.1% to 19.43 per dollar. The currency

was on course to record annual gains of 5.6%, having recouped

almost all of its pandemic-induced losses and becoming one the

best-performing emerging market currencies this year.

Most EM currencies have suffered losses in 2022 as the

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dollar’s gains in the wake of a series of U.S. interest rate

hikes, surging inflation and fears of a global recession all

held investors back from making risky bets.

Mexico’s central bank has been increasing its benchmark

interest rate since June 2021 to stem inflation, and hiked it to

a record 10.5% at its last policy meeting. Many believe that the

rate-hike cycle could end next year, likely halting gains in the

peso.

Investors have also kept a close watch on China’s reopening

from COVID-19 lockdowns although surging infection rates there

have prompted several countries to impose travel curbs.

“China is another unknown as the path from zero-COVID to

zero-restrictions is going to be bumpy at best and it’s not

clear how the leadership is going to manage it,” said Craig

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Erlam, senior market analyst at Oanda.

“The near-term could see severe headwinds for the economy

which could have negative consequences for the region and even

around the globe if supply chains are once again impacted.”

Mexico’s benchmark IPC stock index however was set

for a 7.2% decline in 2022 as fears of about rate increases and

a potential recession weighed on global stocks.

The wider LatAm equities index was set to

end the year nearly flat.

The Chilean peso slipped 0.2%, on track to end the

year little changed, while its main stock index was

set to record annual gains of 22%, boosted by higher prices of

the country’s top export, copper.

Meanwhile, Argentina’s main Merval stock index

racked up 134% gains this year in peso terms as the currency

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plunged to a record low.

The Argentine peso has lost more than 40% of its

value as the country grapples with soaring prices amid a severe

economic crisis, with inflation expected to hit around 100% in

2022.

Markets in Brazil and Colombia were closed on Friday.

Key Latin American stock indexes and currencies:

Latest Daily %

change

MSCI Emerging Markets 958.16 0.07

MSCI LatAm 2135.62 -0.8

Mexico IPC 49260.46 -0.52

Chile IPSA 5259.46 0.19

Argentina MerVal 195859.59 -1.756

Currencies Latest Daily %

change

Mexico peso 19.4261 0.10

Chile peso 856.7 -0.21

Colombia peso 4840.98 0.12

Peru sol 3.8047 0.17

Argentina peso (interbank) 177.1100 -0.18

(Reporting by Sruthi Shankar in Bengaluru; Editing by Hugh

Lawson)