Bloomberg reported that Chile’s peso headed for the fourth consecutive weekly decline as concern that Europe’s debt crisis is worsening curbed demand for higher yielding emerging market currencies and eroded the price of Chile’s main export copper.

Pessimism about the European economy intensified after Germany, the safest country for debt investors in the euro area, failed to sell all the notes offered at an auction and yields on Spanish and Italian government bonds soared. Italy had to pay 6.504% to borrow for 6 months at an auction of bills today compared to 3.535% a month ago. The price of a pound of copper for March delivery slid 4.4% this week to USD 3.2715 in New York.

Mr Eugenio Cortes head of currency forwards at EuroAmerica Corredores de Bolsa SA in Santiago said that “The market in general was hanging on to whatever good news it could find but now there is a general realization that it’s more serious and that the crisis will be deeper than we were expecting that a recession in Europe is inevitable. There’s a clear trend of flight to quality in emerging-market currencies and commodities. Doubts about China are also hitting commodities and that’s pushing the peso lower still.”

Mr Cortes said that the next technical level for the peso is at 535 per dollar. Copper is Chile’s biggest export and the largest buyer is China which bought USD 3.6 billion of copper cathodes and concentrate in the Q3 according to central bank data published this week up 1.5% on the same quarter a year earlier.

According to central bank data, offshore investors in the Chilean peso forwards market increased bets against the currency to USD 5.8 billion on November 23 the most since October 20th 2011 from USD 5.5 billion on November 22nd.

(Sourced from Bloomberg.net)