MercoPress. South Atlantic News Agency

US dollar at its highest in Chilean pesos in a year

The exchange rate of the U.S. dollar in Chile closed on Monday at $548 pesos to the greenback, its highest value since August 29, 2005 and a three peso gain over last Friday's exchange rate.

The dollar's improved value could be linked to rumors that Hydro Québec, a North American energy producer, may purchase foreign currency to repatriate their profits from their recent sale of Chile Transelec shares.

Hydro Québec announced on June 16 it would sell 92% of its stake in Chilean energy group Transelec for 1.7 billion US dollars to a Canadian consortium led by Canadian investment firm Brookfield.

Meanwhile, world stock markets started this week on a discouraging note.

The principal cause of these drops in market value is speculation surrounding the next meeting of the Federal Reserve in the United States, scheduled for Wednesday, June 28.

Stocks have been in a month-long tailspin as Fed Chairman Ben Bernanke talks tough on inflation. Wall Street economists expect Bernanke and other Fed officials to continue raising rates at their end of the month meeting and possibly at their August meeting as well.

The US's benchmark interest rate currently stands at 5% and is expected to be raised by a quarter percentage point next week. An August hike would put the rate at 5.5%, at which point Wall Street expects the Fed to signal that it will stop.

At the beginning of the year there was debate that Bernanke would stop at 4.75% but higher-than-expected inflation data and higher-than-average commodity prices have led Fed policy makers to speak out, warning that inflation poses a longer-term threat to the economy than slower growth.

Another part of the equation is Bernanke's need to establish his credibility as Fed chairman and as an inflation fighter.

Economists say Bernanke would prefer to over shoot and then cut later (probably in the December 12 meeting), than to not raise rates enough and let inflation get out of hand.