Chilean Peso Drops as Risk Aversion Grows | ForexGen Signals

The Chilean currency suffered a large daily drawdown today as the declining stock markets around the world pressed on the investors to sell their high-yielding assets including emerging economies’ currencies.

The stock markets were declining today in U.S. and Europe as the central banks signaled a possible rate increase that would probably hurt the global economic development. While the major financial companies are still suffering from the subprime lending crisis, the inflation fears may push both Fed and ECB towards the higher interest rates.

Banco de Chile rose its interest rate yesterday from 6.25 percent to 6.75 percent, widening the gap between the U.S. rate to 4.75 percent and between the Japanese rate to 6.25 percent. That step will attract even more carry trade related activity to this South American currency.

USD/CPL rate rose today on Forex from 486.68 to 490.97 as of 20:51 GMT — that’s almost 1.3 percent daily growth. The unexpected interest rate growth made this pair to drop by almost 0.9 percent yesterday.

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