Bloomberg News

Mexico Peso Advances on European Optimism; Bond Yields Decline

December 06, 2011

Dec. 5 (Bloomberg) -- Mexico’s peso touched a three-week high on optimism that European leaders will resolve the region’s debt crisis and after policy makers in the Latin American country last week left borrowing costs unchanged.

The peso advanced 1 percent to 13.5020 per U.S. dollar at 10:36 a.m. in Mexico City, from 13.6363 on Dec. 2. The currency earlier rose to 13.4474, the strongest level since Nov. 14. The peso has lost 8.6 percent this year, the second worst performance among major Latin American currencies tracked by Bloomberg.

Investor confidence rose as German Chancellor Angela Merkel met French President Nicolas Sarkozy to advance a plan for stricter enforcement of the region’s deficit rules and Italian Prime Minister Mario Monti proposed budget cuts. Mexico’s policy makers kept the benchmark interest rate at 4.5 percent on Dec. 2 after growth in Latin America’s second-biggest economy accelerated and the government and central bank announced measures to support the peso.

“There’s favorable news out of Europe, the big worry a few days ago was Italy and it’s announcing a significant fiscal adjustment program,” Rafael Camarena, an economist at Banco Santander SA in Mexico City, said in a telephone interview. “The decision to not change interest rates along with the announcement from the currency-exchange commission on the domestic side and the news on the international front is making it so that the peso is under less pressure.”

Mexico’s currency-exchange commission said Nov. 29 the central bank will auction $400 million of its reserves daily to arrest a slide in the peso.

Economic Growth

The Mexican economy grew 4.5 percent in the third quarter, up from 3.2 percent in the previous three months. Mexico economists raised their expectation for growth this year in a monthly Bank of Mexico survey to 3.87 percent on Dec. 1 from 3.72 percent in the previous survey.

Italian Prime Minister Mario Monti will lobby parliament to support a 30 billion-euro ($40 billion) package of austerity and growth measures to trim the euro-region’s second-biggest debt and prevent Italy from sparking the euro’s breakup.

The yield on Mexico’s benchmark peso-denominated bond due in 2024 declined nine basis points, or 0.09 percentage point, to 6.50 percent. The price for the security rose 0.94 centavo today to 130.65 centavos per peso.

--With assistance from Chiara Vasarri in Rome. Editor: Brendan Walsh, Marie-France Han

To contact the reporters on this story: Ben Bain in New York at bbain2@bloomberg.net;

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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