Latin American currencies weakened on Monday as the U.S. dollar rose, while escalating conflict in the Middle East drove oil prices higher and pushed Treasury yields to fresh highs, souring risk appetite.
Global investors started the week on a shaky note as oil extended its rally after fresh strikes on Saudi Arabian energy infrastructure and attacks on ships in the Middle East compounded supply concerns.
Benchmark 10-year U.S. Treasury yields climbed to the key 5% level for the first time since October 2023, adding pressure on developing-market assets.
Higher U.S. yields make dollar-denominated investments more attractive, potentially drawing capital away from emerging economies.
The U.S. Federal Reserve is widely expected to raise its main lending rate by at least 25 basis points this week, a sharp shift from just a week ago, when markets saw roughly even odds of a hike or a pause.
An index tracking Latin American currencies fell 0.9%, while the U.S. dollar strengthened 0.4%.
Warnings from leaders of major AI companies about the technology's potential risks also weighed on broader risk sentiment, lending further support to the dollar.
Most Latin American equity indexes also declined as metal prices, a key source of export revenue for the region, came under pressure. MSCI's regional stocks index dropped 1.2%.
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