Bloomberg News

Mexico Peso Drops as Europe Ratings Concern Fuels Risk Aversion

January 16, 2012

Jan. 13 (Bloomberg) -- Mexico’s peso fell the most in two weeks after reports that several European countries may face imminent credit downgrades by Standard & Poor’s reduced demand for the Latin American country’s higher-yielding assets.

The peso weakened 1 percent to 13.6677 per U.S. dollar at 9:27 a.m. in Mexico City, from 13.5323 yesterday. It is headed for the biggest decline since Dec. 27. The currency has strengthened 0.6 percent this week.

The downgrades may happen as soon as today, according to Dow Jones Newswires, which cited European Union sources. S&P declined to comment on the report, according to Philippa Melaniphy at S&P’s press office in London. Germany’s rating will not be cut, Reuters reported, citing a senior euro-area source. Concern about how Europe’s debt crisis will affect global growth made the peso Latin America’s worst-performing major currency over the past 12 months.

“Everybody’s waiting for the other shoe to drop,” Win Thin, the global head of emerging- markets, currency strategy at Brown Brothers Harriman & Co. in New York, said by phone. “The risk-off trade is back today. Mexico is one of the high-betas so it’s going to get hurt a little bit more. I do think we’re at the strong end of recent ranges.”

The yield on Mexico’s benchmark peso-denominated bond due in 2024 held near a one-week low. The yield rose two basis points, or 0.02 percentage point, to 6.55 percent today, according to data compiled by Bloomberg. The price of the security fell 0.18 centavo today to 129.97 centavos per peso.

U.S. Trade Deficit

The trade deficit of the U.S., the destination of 80 percent of Mexican exports, widened more than forecast in November as American exports declined and companies stepped up imports of crude oil and automobiles, Commerce Department figures showed today in Washington. Mexican production of cars and light trucks, the country’s biggest export, rose 5 percent in December from the same period in 2010, the country’s Automobile Industry Association, said this week.

“Mexico has done very, very well and the expectation is that a lot of plants open in the next two years, that’s pretty positive,” Benito Berber, a strategist for Latin America at Nomura Securities Inc. in New York, said by phone.

--With assistance from Allison Bennett in New York. Editor: Marie-France Han

To contact the reporter on this story: Ben Bain in Mexico City at bbain2@bloomberg.net

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


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