Mexico’s peso posted its biggest weekly rally since January as China’s first interest-rate cut since 2008 prompted speculation more central banks will act to bolster the global economy.
The currency erased earlier losses today after Mexican policy makers held the benchmark interest rate at a record low 4.5 percent and as Spain prepared to become the fourth nation in the euro area to seek emergency assistance, with finance chiefs planning weekend talks.
The peso rose 1.1 percent to 13.9212 per dollar at 4 p.m. in Mexico City, extending its rally this week to 2.8 percent, the biggest gain since the five days ended Jan. 20.
“Most of what’s behind this recovery has been the expectation that central banks might implement more aggressive strategies to stimulate their economies,” Mario Copca, a foreign-exchange strategist at Metanalisis SA, said in phone interview from Mexico City. “This has helped ease some of the volatility.”
Mexico’s central bank sold $258 million of foreign reserves May 23 in its first such intervention since December 2009. It intervened again on May 31 after the peso fell to a three-year low, marking the second time policy makers had used the program they introduced in November.
The bank has been offering $400 million at three daily auctions at an exchange rate at least 2 percent weaker than the previous day’s fix rate since Nov. 30.
Dropping Bonds Yields
The yield on Mexican local-currency bonds due in 2024 fell nine basis points, or 0.09 percentage point, to 6.12 percent this week, according to data compiled by Bloomberg. The price rose 0.97 centavo to 133.87 centavos per peso.
Mexico’s central bank kept its benchmark interest rate unchanged for the 27th straight meeting as a pick-up in inflation and a slump in the peso offset concern that a faltering U.S. economy may undercut export demand.
China’s one-year deposit rate was reduced this week to 3.25 percent from 3.5 percent. The Reserve Bank of Australia cut its target lending rate by a quarter-percentage point to 3.5 percent, the lowest level since 2009. Federal Reserve Chairman Ben S. Bernanke said policy makers will need to assess conditions before deciding if more measures are needed to bolster the U.S. economy.
Fitch Ratings cut Spain’s credit rating to BBB from A yesterday, saying the nation may need as much as 100 billion euros ($125 billion) to bolster its banking system, compared with an earlier estimate of about 30 billion euros.
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