Short-Term FX Comeback

We expect another eventful week for our main currencies in Latin America, following last week's epic sell-off in the Mexican peso, the Brazilian real and the Chilean peso, which have seen their sharpest declines- in the case of Mexico and Chile - since the 1990s. While still elevated levels of investor risk aversion present further downside risks to currencies, aggressive central bank measures, and prospects of global financial market volatility coming off the boil this week, could create room for a brief bounce. However, although the worst declines in the latest bout of volatility may be behind us, at least for the time being, our medium-term outlook for Latin American FX remains bearish.

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