Latam FX lifted by subdued dollar in run up to Fed, Brazil's real slips

Most Latin American currencies rose on Tuesday as recent banking turmoil lifted hopes that the Federal Reserve could soon end its rate-hiking cycle, while Brazil's real lagged as an announcement of new fiscal rules was delayed.

The U.S. dollar index DXY was flat, lifting many emerging market currencies as risk sentiment rose on expectations the Fed will hike its benchmark lending rate by a smaller 25 basis points at the end of a two-day policy meeting on Wednesday.

"From a global markets perspective, developments around the stability of U.S. regional banks may continue to result in sharp intraday action in Latam," said Juan Manuel Herrera, senior strategist at Scotiabank.

The real (BRBY), USDBRL slipped 0.1% as investors were left frustrated after President Luiz Inacio Lula da Silva said the proposal for a new fiscal framework will only be announced after his visit to China.

It was initially expected to be unveiled this week. Lula will be in China from March 26 to 30.

Brazil's central bank was also on tap for the week, with expectations that it will leave the Selic rate unchanged at 13.75% for the fifth straight meeting.

Currencies of the world's two biggest copper miners, Chile USDCLP and Peru USDPEN added 0.4% and 0.5%, respectively, after prices of the red metal jumped.

Santiago stocks SP_IPSA rose 2.5%, while Peruvian equities (.SPBLPGPT) gained about 1.1%.

Colombia's peso USDCOP firmed 0.2%, while the Mexican peso USDMXN jumped 1% as both oil producers benefited from higher crude prices.

Mexico's inflation likely eased in the first half of March, but still remained well above the official target, a Reuters poll showed, reinforcing bets the central bank will raise rates again at its next meeting.

Most emerging market assets have been hammered by fears of contagion sparked by distressed Swiss lender Credit Suisse and the collapse of two big regional U.S. banks. The MSCI's index for Latam stocks (.MILA00000PUS) is down nearly 4% in March, heading for its second straight monthly decline.

"China and a softish dollar offer potential EM upside amid uncertainty," said Jon Harrison, managing director of EM macro strategy at TS Lombard, in a note. Harrison added that Taiwan, Brazil, and Mexico were his top equity calls.

Ecuador declared a state of emergency in 14 provinces worst affected by severe weather and a strong earthquake that shook the country over the weekend.

Uruguay's economy is seen growing 2.0% this year, according to an International Monetary Fund (IMF) forecast released on Monday.

Key Latin American stock indexes and currencies at 1840 GMT: