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South American currencies decline on Fed tapering fears
November 28, 2013, 9:49 am

The US dollar has been gaining against major South American currencies [Getty Images]

The US dollar has been gaining against major South American currencies [Getty Images]

Fears that the US Federal Reserve may be prompted by positive economic indicators to taper its stimulus programme have caused jitters in South American economies.

Currencies in key markets have registered losses against the US dollar for the third consecutive day this week.

On Wednesday, a US Department of Labour report indicated that 10,000 fewer Americans had filed for unemployment benefits last week, bringing the seasonally adjusted rate down to 316,000 – a level not seen since before 2008.

“The 4-week moving average was 331,750, a decrease of 7,500 from the previous week’s revised average of 339,250,” the report said for the week ending November 23.

With less people being laid off, the report also showed that more people were hired by private businesses.

This appeared to reverse a sluggish hiring trend in September.

Earlier in the week, new home construction hit a record in more than five years as the housing industry appeared to continue its recovery.

The news from the US a day ahead of the Thanksgiving holiday market closure pushed Brazil’s real down 0.7 per cent to 2.3122 against the greenback Wednesday.

Chile’s peso fell 0.8 per cent while Argentina’s peso fell 0.2 per cent at the official exchange rate against the dollar.

While the day-to-day changes may seem modest, the year-to-date devaluation for key South American economies paints a picture of currency volatility.

The real. for example, has fallen nearly 12 per cent year-to-date, while the Argentinian peso has declined by 19. 57 per cent year-to-date.

Colombia’s peso and Chile’s peso fell 8.43 and 9 per cent, respectively, since January 1.

The currency markets had not fallen under such pressure since June 2013, when outgoing Federal Reserve Chairman Ben Bernanke first suggested that Washington’s $85-billion stimulus program (also known as quantitative easing) would be scaled back in 2014.

However, the Federal Reserve would not take such a decision unless unemployment fell to 7 per cent amid data that the US economy had been revitalised.

This week’s US figures, in addition to data pointing to the highest consumer confidence level since the October Federal Shutdown, indicate that the economy may be wobbling it’s way firmly out of recession and into more stable recovery.

Source: Agencies