Brazilian real up on fiscal relief; Peru's sol falls amid political turmoil

Brazil's real rose on Wednesday on relief over lower-than expected fiscal spending and ahead of the central bank's monetary policy decision, while the Peruvian sol fell as the Andean country's Congress voted to oust President Pedro Castillo.

Peru's Congress voted to remove Castillo in an impeachment trial, hours after he said he would dissolve the legislature by decree and threw the country into a full-on constitutional crisis.

The sol USDPEN fell over 2% against the dollar at its session low before recovering slightly to trade down 1.4%.

"We saw a big sell off when Castillo tried to dissolve Congress and there was some uncertainty around what that actually meant for not only Congress, but the impeachment vote," said Brendan McKenna, international economist and FX strategist at Wells Fargo.

"But we're seeing sol recover ground... a lot of the stress that we saw early on has been absorbed."

Brazil's real USDBRL (BRBY) rose 0.6% after the Commission of Constitution and Justice approved unfunded extra public spending of 145 billion reais ($27.77 billion), less than the 175 billion reais proposed, with the waiver cut to two years from four.

Investors are also awaiting the central bank's policy decision later in the day, where they expect the rate to be left unchanged at 13.75%.

"We suspect that monetary conditions in Brazil and Mexico will be loosened more quickly than most are anticipating. But inflation and weak external positions mean that rates will remain higher for longer in Colombia and Chile," said emerging market economists at Capital Economics.

Overnight, Chile's central bank left its key interest rate at 11.25% and said the country had reached its peak in the hiking cycle. Latest inflation data, however, showed a more-than-expected rise in prices.

Chile's peso USDCLP gained 1.7%. The central bank said the economy is set to contract between 1.75% and 0.75% in 2023 amid looming recession.

"Latin America will suffer more prolonged damage from the pandemic than other parts of the world," Capital Economics warned, saying the effects of the pandemic are likely to push Latam on to a "permanently" lower path of growth.

Mexico's peso USDMXN rose 0.5% after a finance ministry official said Mexico's economy would grow 2% in 2023.

In Argentina, the peso USDARS slipped. An Argentine court on late Tuesday sentenced Vice President Cristina Fernandez de Kirchner to six years in jail and disqualified her from holding public office in a high-profile corruption case.

Key Latin American stock indexes and currencies: