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Dollar strength, growth worries hurt Latam currencies

(Updates throughout, adds market closings) By Sruthi Shankar July 23 (Reuters) – Latin American currencies weakened on Tuesday, hurt by a strong dollar after U.S. lawmakers reached a debt and spending deal, while the International Monetary Fund slashed its growth estimate for the region by more than half. Brazil’s real slid as much as 0.95% to touch a two-week low against the dollar. The currency has tacked on 2% this month as the government’s pension reform bill passed its first congressional hurdle, although bets that Brazil’s central bank will embark on an aggressive monetary policy easing cycle at a meeting next week piled pressure on the real. Brazil’s consumer price index fell to its lowest level in over a year, increasing expectations of a rate cut. “This low print is in line with our economists’ view that the BCB will cut 25bp (basis points) this month, totaling 100bp for the full cycle,” Citi analysts wrote in a note. Denting most emerging market currencies, the dollar rose after President Donald Trump and U.S. lawmakers reached a two-year deal lifting government borrowing limits to cover spending. Investors are looking to the European Central Bank and U.S. Federal Reserve to confirm their expectations of interest rate cuts, hopes of which have encouraged capital inflows into developing world assets this year. Further weakening sentiment, the IMF said Latin America’s economic output is expected to grow 0.6% this year, down from an expected 1.4% growth forecast in April. Mexico’s peso was down 0.6%, with President Andres Manuel Lopez Obrador criticizing the IMF’s downgrade and reiterating that the economy will expand 2% in 2019. The Chilean peso and Colombian peso fell between 0.4% and 0.6%. Argentina’s peso shed about 0.5%. The IMF in its report expected a slightly deeper-than-expected recession in Argentina in 2019 and a slower recovery in 2020. Sao Paulo-listed stocks were flat as shares of heavy-weight miner Vale dropped 1%, tracking a fall in Dalian iron ore prices, while banks helped limit losses. Mexican stocks fell for a sixth straight session and hit their lowest level in over seven months, with losses led by breadmaker Grupo Bimbo after quarterly results. Key Latin American stock indexes and currencies at 1948 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 1055.05 0.12 MSCI LatAm 2887.55 -0.86 Brazil Bovespa 103920.71 -0.03 Mexico IPC 40946.38 -0.64 Chile IPSA 5000.51 -0.63 Argentina MerVal 39245.24 1.33 Colombia IGBC 13017.54 0.55 Currencies Latest Daily % change Brazil real 3.7717 -0.91 Mexico peso 19.1821 -0.68 Chile peso 693 -0.63 Colombia peso 3187 -0.35 Peru sol 3.295 -0.30 Argentina peso (interbank) 42.6650 -0.48 (Reporting by Sruthi Shankar and Agamoni Ghosh in Bengaluru; Editing by Rosalba O’Brien)

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