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Trump may trade deal with China, demands lower US interest

rates

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Brazilian annual inflation rate overshoots forecasts

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MSCI Latam FX index set for strongest week since August

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MSCI Latam FX index up 0.3%, stocks jump 0.48%

(Updates to mid-session trading)

By Purvi Agarwal and Pranav Kashyap

Jan 24 (Reuters) - Latin American currencies ticked up

on Friday, led by the Mexican peso, as U.S. President Donald

Trump's more conciliatory approach to Chinese tariffs and his

appeal for reduced U.S. interest rates put pressure on the

dollar.

The Mexican peso edged up 0.42% on Friday, capping

its strongest week since September. This upward momentum was

fueled by Trump's signals of a potential trade agreement with

China, offering a glimmer of hope to investors in

tariff-battered economies like Mexico, China, and Canada.

In tandem with these developments, the onshore Chinese yuan

climbed to its highest point in over a month, while

the Canadian dollar or the loonie, edged up by 0.3%.

The anticipation of more lenient tariffs cast a shadow over

the dollar index, which measures the U.S. dollar against a

selection of developed market currencies, pulling it back to

levels not seen since late December.

Since Trump's election in November, the specter of U.S.

tariffs has loomed large over emerging market assets, keeping

currency markets on edge and highly reactive to the latest

headlines.

Shifting focus to Brazil, the real was last trading

flat. It is momentarily reaching its peak in over a month and

setting the stage for its strongest week since August.

Economic data showing a slower-than-expected deceleration in

Brazil's annual inflation rate in early January has solidified

expectations for a 100 basis point interest rate hike by the

central bank in its forthcoming meeting, a move anticipated by a

Reuters poll.

Should this hike materialize, it would mark Brazil's second

full percentage point increase following a surprise decision in

December. This comes amidst persistent investor anxieties over

Brazil's public debt burden and the government's capacity to

achieve its fiscal goals.

Brazil ended 2024 with a current account deficit amounting

to 2.55% of GDP, more than twice the level recorded the previous

year.

"Brazil is in an extremely fragile situation ... inflation

has started to decline, but we need more confirmation about

decreasing inflation pressures, which could stop these rate

hikes," said Mabrouk Chetouane, head of global market strategy

at Natixis Investment Managers.

Separately, Brazil closed 2024 with a current account

deficit equivalent to 2.55% of gross domestic product (GDP),

more than double the level seen in the previous year.

In related news, Brazil's government is contemplating a

reduction in import taxes on food products that are currently

pricier domestically than internationally, as stated by

Presidential Chief of Staff Rui Costa.

Chile's peso appreciated 0.67% against the dollar,

set to gain for the third straight session. The Colombian peso

was up 1.27%.

MSCI's index tracking Latin American currencies

rose by 0.3%, poised for its largest weekly gain

since August. The regional stocks gauge ticked

up 0.48%, heading towards its sixth consecutive session of gains

- its longest streak in over four months.

Meanwhile, a bank trade group's preliminary data showed that

foreign investors added $273.5 billion to their emerging market

equity and debt portfolios in 2024, nearly $100 billion more

than in 2023.

Elsewhere, S&P could lower its rating outlook on Romania to

negative later in the day, following a similar move by Fitch

last month as the country's attempts to restore investor

confidence and lower the European Union's highest budget deficit

hit early hurdles.

Argentina's unexpected cuts to grain export taxes are

expected to trigger a surge in shipments from the sector,

analysts said. In response, the Argentine peso gained as

much as 3.5%, according to traders.

Key Latin American stock indexes and currencies:

Equities Latest Daily % change

MSCI Emerging Markets 1089.47 0.75

MSCI LatAm 1979.65 0.48

Brazil Bovespa 122391.12 -0.08

Mexico IPC 51340.78 0.56

Chile IPSA 7068.14 0.24

Argentina MerVal 2548726.29 -2.91

Colombia COLCAP 1413.09 1.13

Currencies Latest Daily % change

Brazil real 5.9212 0.05

Mexico peso 20.283 0.42

Chile peso 980.35 0.67

Colombia peso 4167.6 1.27

Peru sol 3.719 -0.24

Argentina peso 1,046.0 0.14

(interbank)

Argentina peso 1,205.0 2.82

(parallel)