By Bruno Federowski

By Bruno Federowski

 

SAO PAULO (Reuters) - Brazilian and Mexican currencies will weaken less than previously thought against the U.S. dollar during the next 12 months as low interest rates abroad offset political uncertainty at home, a Reuters poll found on Thursday.

 

The fresh forecasts come in the wake of a stronger-than-expected performance for both currencies in the first seven months of 2017, which drove them to their strongest levels in more than a year.

 

Still, estimates from top banks and research firms suggest the currencies probably will give back part of their recent gains.

 

The Mexican peso is seen at 18.115 per dollar in 12 months versus 18.5 in July, having outperformed all major emerging market currencies this year as fears of a U.S. trade war abated. The Brazilian real is expected to weaken to 3.35 per dollar from 3.42.

 

Elsewhere in the region, foreign exchange strategists polled by Reuters forecast the Argentine peso at 18.865 in a year, the Chilean peso at 666.5, the Colombian peso at 3,039 and the Peruvian sol at 3.38 to the greenback.

Emerging market currencies are expected to benefit from resilient appetite for high-yielding assets throughout the world as the U.S. Federal Reserve and the European Central Bank (ECB) take their time in unraveling monetary stimulus.

Although U.S. economic growth has shown signs of accelerating, an unexpectedly slow pickup in price hikes has made analysts skeptical of the Fed's stated plan of increasing interest rates once more this year and three times next year.

Meanwhile, euro zone inflation remains far below the ECB's target of close to 2 percent, driving policymakers to hold off paring back bond purchases meant to stimulate activity.

That prospect is likely to provide support to the Brazilian real and the Mexican peso, despite both countries facing highly uncertain general elections in 2018 that have stoked trader fears of a populist swing. A series of interest rate hikes and currency interventions in Mexico also have fostered trust in the strength of the local currency.

In Brazil, concerns that corruption allegations against President Michel Temer could derail his plans to streamline the country's bloated social security system also seem to have been put off in the short-term.

"So far, the political crisis hasn't impacted the risk perception in Brazil in any meaningful way," Ivo Chermont, an economist with investment boutique Quantitas, said. "We'll only begin to seriously discuss the elections in around six months."

Eleven of 12 strategists who replied to an additional question said they saw no potential for regional spillovers from the political crisis in Venezuela.

(Additional reporting by Sheky Espejo in Mexico City, Hernan Nessi in Buenos Aires, Nelson Bocanegra in Bogota, Ursula Scollo in Lima and Felipe Iturrieta in Santiago; Editing by Bill Trott)