Bloomberg News

Mexico Peso Drops as Europe Concern Overshadows Export Optimism

December 09, 2011

Dec. 8 (Bloomberg) -- Mexico’s peso dropped the most in two weeks as concern about Europe’s debt crisis overshadowed a decline in U.S. jobless claims that fueled optimism for the Latin American country’s exports.

The peso fell 1.5 percent to 13.7118 per U.S. dollar at the close in Mexico City, from 13.5107 yesterday. It dropped 2.1 percent on Nov. 21. The currency has weakened 10 percent this year.

The peso reversed early gains after the European Central Bank damped speculation that it would increase debt purchases to fight the region’s crisis. Labor Department figures in Washington today showed jobless claims in the U.S., the destination for 80 percent of Mexico’s exports, dropped by 23,000 to 381,000 in the week ended Dec. 3, the fewest since February.

“At first the day opened optimistically,” Omar Martin del Campo, head trader at Banco Ve Por Mas SA in Mexico City, said by phone. “The comments from the European Central Bank once again put pressure on the currency. It looks like the problem probably will continue.”

ECB President Mario Draghi said today that he did not necessarily signal last week that the central bank would step up government bond purchases, adding that the program was not eternal or infinite.

Draghi kept the onus on European leaders to solve the problem by repeating his call for a “fiscal compact” and denying he had hinted the ECB would automatically support such an initiative with more bond purchases.

The peso earlier rose after the U.S. jobless claims data was released because “anything that helps the U.S. economy is generally good for the Mexican peso,” Benito Berber, a strategist at Nomura Securities Inc., said by phone from New York.

Mexico Inflation

Mexican consumer prices climbed 1.08 percent in November, outpacing expectations for a 1.06 percent increase according to the median estimate of 19 analysts in a Bloomberg survey. It was the biggest jump since prices rose 1.09 percent in January 2010. Prices increased 3.48 percent from a year ago, the national statistics agency said on its website.

Policy makers led by Governor Agustin Carstens left the overnight rate at 4.5 percent for a 23rd straight meeting on Dec. 2, reiterating that the central bank is open to cut rates if global easing continues.

The central bank said in a statement accompanying the decision that inflation has not been affected by a recent depreciation in the exchange rate, although it shifted the balance of risk on inflation to neutral from improved in the previous statement.

Mexico’s currency-exchange commission said Nov. 29 the central bank will auction $400 million of its reserves daily at a peso exchange rate at least 2 percent weaker than the previous day’s level to arrest a slide in the currency.

Mexico’s central bank said it didn’t sell dollars or receive offers in the three auctions it held today.

The yield on Mexico’s benchmark peso-denominated bond due in 2024 rose six basis points, or 0.06 percentage point, to 6.60 percent, according to data compiled by Bloomberg. The price of the security fell 0.68 centavo to 129.64 centavos per peso.

--With assistance from Nacha Cattan in Mexico City. Editors: Richard Richtmyer, 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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