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Mexican peso bounces off seven-week lows

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Dollar firms after U.S. services sector data

By Sruthi Shankar

June 5 (Reuters) - The Mexican peso rebounded on

Wednesday from seven-week lows hit against the dollar a day

earlier as investors weighed the political path for Latin

America's No. 2 economy following Sunday's election.

The peso strengthened by 1.9% to 17.52 per dollar,

after shedding about 5% in the past two days when traders

fretted about the ramifications of the resounding win for

Claudia Sheinbaum's Morena party and its allies in Sunday's

Mexican election.

The party looks poised for a super-majority in Congress.

Investors worry Sheinbaum's overwhelming victory might bring

constitutional change and diminish checks and balances.

While the peso appeared to stabilize on Wednesday, other

Latam currencies such as the Brazilian real, Colombian

peso and Chilean peso struggled to make headway

as the dollar firmed against major peers.

The U.S. services sector snapped back into growth mode in

May after a short-lived contraction the month before, according

to a survey that may buttress the Federal Reserve's wariness of

a shift to interest rate cuts.

"We find that the market has struggled to price faster

cutting cycles in EM (emerging markets) unless the market

expectation of the first rate cut by the Fed is within striking

distance (less than three months away)," noted Tadas Gedminas,

an economist at Goldman Sachs.

"In the event that we get pre-election Fed cuts, we would

highlight local rates in Czechia, Hungary and Mexico as

potential candidates to benefit the most from this, although in

the case of Mexico this would also depend on how the

post-election dust settles."

A Reuters poll found that EM currencies will struggle to

rebound this year, pressured by a Fed that is in no rush to cut

rates and some pivotal national election results.

The poll also showed the 12-month consensus forecast for the

Brazilian real was downgraded to the weakest in one year,

suggesting its recent decline may become a longer-term issue,

rather than a passing trend.

Amid risk-on moves in global stock markets, a gauge of Latam

equities climbed 1.1% after a six-day run of

losses that had pushed it to a seven-month low.

HIGHLIGHTS:

** Winter deepens misery for Argentina's poor following

Milei's financial cuts

** BHP and union to begin talks to avert strike at Chilean

copper mine

Key Latin American stock indexes and currencies:

Latest Daily %

change

MSCI Emerging Markets 1063.37 1.08

MSCI LatAm 2300.29 1.14

Brazil Bovespa 121575.34 -0.19

Mexico IPC 54068.36 1.09

Chile IPSA 6617.28 0.29

Argentina MerVal 1523453.06 -3.65

Colombia COLCAP 1406.61 0.18

Currencies Latest Daily %

change

Brazil real 5.2746 0.19

Mexico peso 17.5157 1.93

Chile peso 903.8 0.14

Colombia peso 3927.98 0.09

Peru sol 3.75 -0.81

Argentina peso (interbank) 897.5000 0.00