Economy 2 MIN READ

Mexican peso slips on Pemex debt concerns; risk assets fall on Fed comments

April 22, 2022By Reuters

April 21 (Reuters) – Mexico’s peso touched its lowest level in a month on Thursday after state oil firm Pemex came under
pressure to make debt repayments, while Peru’s sol slipped after a state of emergency was declared at a top copper mine.

Emerging markets more broadly were also pressured after U.S. Federal Reserve Chair Jerome Powell’s confirmation that a
half-point increase in interest rates in May was “on the table.” This strained nerves of investors nerves already jittery about a
slowdown in growth in China and fallout from the Russia-Ukraine war.

“We were all waiting for confirmation that Powell is on board with the 50 basis-point rate hike at the next meeting,
obviously he gave that impression,” said Mike O’Rourke, chief market strategist at Jonestrading. “The one thing that investors have confidence in is that the tightening policy is going to be here for the foreseeable future.”

As U.S. stocks fell sharply following Powell’s comments, Latam bourses also weakened with Chile’s IPSA down
almost 2%, on course for its worst session in a month. Mexico’s peso slid 1%, hitting 20.23 against the
dollar during the session. Mexico’s inflation forecast could be revised higher at the next meeting due to the impact of the
Ukraine war, the central bank chief said.

Cash-strapped Petroleos Mexicanos is due to pay some 1 billion euros ($1 billion) to redeem a 2015 bond, two sources
with knowledge of the matter told Reuters, despite President Andres Manuel Lopez Obrador’s promise that his government would pay them until 2024.

Pemex has struggled with years of declining crude production and in 2020 lost its coveted investment-grade debt rating. The
state-run firm’s debt woes have impacted Mexico’s sovereign credit rating over the years.

Meanwhile, currencies of world’s top copper producers Chile and Peru slid, with the latter sliding 1.2%, having hit
10-week lows during the session. Peru declared a state of emergency near Southern Copper Corp’s Cuajone mine, as protests hit top mines in the Andean nation, halting 20% of national copper output.

Chilean miner Antofagasta’s said first-quarter copper production fell 24% year on year, hit by continued drought and lower grades. Chile’s constitutional assembly is to start debating dozens of articles on Thursday regarding mining, water and environmental rights that could reshape how the country regulates production of the red metal and minerals like lithium.

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