The Brazilian real led losses among Latin American currencies on Wednesday, nearing a level that has triggered central bank interventions in the past, as investors speculated the government would favor a weaker currency to boost the economy.
The Mexican peso also weakened, although a more modest 0.4 percent, after failure by international lenders to agree on emergency aid for Greece drove a bid for safe-haven assets such as the dollar.
The Brazilian real lost 0.66 percent to 2.0944 per dollar, just shy of the ceiling of an informal trading range of 2.0-2.1 per dollar, where it has been stuck since early July.
In the past several months, the central bank has intervened in the market every time the real has neared the edge of that range, keeping the currency at a level considered beneficial to exporters, and at the same time, not too bad for inflation.
But concerns that Brazil's economy is taking too long to recover have increased speculation that this time the government would let the real weaken past the 2.1 per dollar mark. Such adjustment would be minor, however, to minimize inflation pressures.
"Given a history of raising the ranges for the dollar-real exchange rate over time, we imagine that the central bank is not going to defend the 2.10 level," Citigroup's strategists Dirk Willer and Kenneth Lam wrote in a research note.
"Raising the upper end of the ceiling to 2.12 or potentially to 2.15 does seem plausible," they added.
Expectations that the government is about to let the currency weaken further grew after President Dilma Rousseff told local daily Valor Economico, in an interview published on Tuesday, "We're looking for an exchange rate that is not this one, with a devalued dollar and an overvalued real."
Joao Medeiros, a currency director with Pioneer brokerage in Sao Paulo, said, "I don't see the fundamentals of this currency move, but according to what Dilma said, the government wants a weaker real."
In a note to clients, Nomura strategists said they expect the real to weaken to 2.14 per dollar in the near future.
Other analysts expressed concern that a weaker currency could further boost the price of imported grains and other commodities, boosting an inflation rate that is already running above the government target of 4.5 percent, with a tolerance band of 2 percentage points up or down.
"With economic activity gaining momentum, another round of real depreciation could have a larger effect on inflation, which is an event we do not believe the central bank is looking for," Barclays' analysts Guilherme Loureiro and Marcelo Salomon wrote in a research note.
Inflation concerns also drove Brazil's domestic yield curve higher. Interest-rate contracts maturing in January 2014 rose 1 basis point to 7.34 percent.
The Mexican peso briefly firmed past the psychologically important 13.000 per greenback level, which had not been touched since Nov. 7. before falling back to 13.0575.
Flavia Cattan-Naslausky, a strategist with RBS Securities, said the peso's fall was due to jitters ahead of the U.S.
Thanksgiving holiday on Thursday, which would thin market liquidity, as well as bad news from Greece.
"The external headlines have pushed a risk off environment here," she said.