Latam FX up as US inflation data boosts Fed pause hopes

Most Latin American currencies rose on Tuesday after data showing a slowdown in U.S. consumer prices growth last month weighed on the dollar, while firm copper prices boosted the Chilean peso after the previous day's sharp declines.

MSCI's Latin American currencies index (.MILA00000CUS) was up 0.6% at 2040 GMT and at its highest level in nearly a decade.

U.S. consumer prices barely rose in May and the annual increase in inflation was the smallest in more than two years, supporting the view the Federal Reserve would keep interest rates unchanged on Wednesday.

"Today's CPI number was a relief for the market, as the data met expectations, confirmed the dis-inflationary trend and re-affirmed current market pricing of a Fed pause tomorrow," said Alexandra Wilson-Elizondo, Deputy CIO of Multi Asset Solutions, Goldman Sachs Asset Management.

Chile's peso USDCLP gained 0.4% against the dollar, after suffering its biggest one-day percentage decline since mid-March in the previous session, sparked by the country's program to boost its international reserves.

Helping the currency of the world's biggest copper exporter was a rise in prices of the red metal after top consumer China cut borrowing costs for the first time in 10 months to aid economic growth.

The currency of Peru USDPEN, another leading copper producer eased 0.5%.

Peru closed $5.48 billion buyback and swap of sovereign and global bonds, the largest debt operation in the country's history, the government said.

Mexico's peso USDMXN climbed 0.4% as the oil producer's currency was boosted by a 3% rally in crude prices after top importer China's rate cut.

The Colombian peso USDCOP, however, slipped 0.2%, bucking the broader trend.

Colombia's government raised its fiscal deficit projection for 2023 to 4.3% of gross domestic product, up from a previous estimate of 3.8% but below the figure recorded last year, a government document showed.

The Brazilian real USDBRL, (BRBY) was flat in choppy trade, a day after the country's central bank chief, Roberto Campos Neto, indicated that an improvement in market conditions is paving the way for a shift in monetary policy.

Juan Manuel Herrera, senior strategist at Scotiabank believes comments from Campos point to chances of rate cuts in Brazil soon.

"The market is now fully positioned for the start of rate cuts in August, seeing around 30bps in reductions by then, and also close to two full percentage points by year-end," Herrera said in a note.

Brazilian President Luiz Inacio Lula da Silva said his government will launch a 'big' infrastructure program on July 2.

The MSCI's index for regional stocks (.MILA00000PUS) inched 0.1% up, underperfoming its emerging market peers.

Key Latin American stock indexes and currencies: