Latam currencies slide as fears of hawkish Fed fuel dollar

Latin American currencies fell on Monday, with Mexico's peso down nearly 2%, underperforming emerging market peers as the dollar firmed, while investors also kept an eye out for political developments in Brazil.

The dollar index DXY rose as data showed U.S. services industry activity unexpectedly picked up in November, prompting speculation the Federal Reserve may not be able to pivot to slower rate rises imminently.

With U.S. stocks sliding as the data added to fears of a hawkish Fed, Latin American stocks (.MILA00000PUS) followed suit.

Colombia's peso USDCOP fell 1.3%, retreating further from the more than two-month high hit last week. Data showed Colombia's consumer prices rose 0.77% in November, taking cumulative 12-month price growth to 12.53%, more than four times the central bank's target.

Mexico's peso USDMXN extended declines after losing around 0.3% last week, with eyes on November inflation later in the week that could open the door for the Bank of Mexico to opt for a less aggressive interest rate hike at its December meeting.

Investors will also be watching for central bank policy meetings in Chile, Peru and Brazil this week.

"We expect (Brazil's) Selic basic interest rate to be held at 13.75% until September 2023, acknowledging that the risk of maintaining the rate at this level has increased with the recent rise in fiscal uncertainty," Credit Suisse economists said.

"For now, we expect a Selic rate of 11.50% at year-end 2023."

Brazil's real (BRBY) lost 1.1% after jumping 3.7% last week.

All eyes are on Brazilian president-elect Luiz Inacio Lula da Silva and his transition team, as investors await further clarity on the make-up of his Cabinet, especially the economy minister, and likely fiscal policies.

"Whoever takes the helm (of the economy ministry) will have a lot on their plate, including the unanswered question of how big the fiscal expansion will be in 2023," JPMorgan economists said.

"We remain of the view that a watered-down version, increasing expenditures by 1.2% of GDP, will materialize, but reckon that asymmetry is tilted toward higher expenditures."

Meanwhile, the International Monetary Fund said on Friday it had reached an agreement with Argentine authorities on a third review under its Extended Fund Facility Arrangement, which could give the South American country access to around $6 billion.

Key Latin American stock indexes and currencies at 1902 GMT: