Bloomberg News

Mexico Peso Drops as Spain Aid Plan Fails to Ease Europe Concern

June 11, 2012

Mexico’s peso fell from its strongest level in almost three weeks as Spain’s request for assistance to shore up its banks failed to quell concern that Europe’s debt crisis is getting worse.

The peso weakened 1.2 percent to 14.0940 per dollar at 4 p.m. in Mexico City after earlier climbing 0.8 percent to 13.8108, the strongest intraday level since May 22. The currency is down 1.1 percent this year.

“The market is just skeptical,” said Flavia Cattan- Naslausky, a Latin America strategist at Royal Bank of Scotland Group Plc in Stamford, Connecticut. “Without any certainty or consensus on these measures, nothing really is going to happen before the Greek elections anyway.”

The peso strengthened earlier after a report showed Mexico’s industrial output increased 3.6 percent in April from a year earlier. The economy may expand as much as 4.25 percent this year, compared with 3.9 percent in 2011, the central bank said May 16.

Speculation that Europe’s debt crisis would weigh on global growth and the market for Mexican exports helped make the peso Latin America’s worst-performing major currency in 2011.

Italy’s 10-year bonds reversed early gains in the first trading after the Spanish bailout and fell for a fourth day. Italy has 2 trillion euros ($2.5 trillion) of debt, more as a share of its economy than any developed nation except Greece and Japan.

Aid for Spain

Spanish Economy Minister Luis de Guindos said on June 9 that he would request as much as 100 billion euros in emergency loans from the euro area to shore up a banking system hobbled by more than 180 billion euros of bad assets.

The Greek party Syriza, one of the two parties leading polls before an election on June 17, has said it won’t adhere to terms agreed to in the nation’s European Union and International Monetary Fund bailouts, a move that may drive the country to abandon the euro.

The yield on Mexican local-currency bonds due in 2024 fell five basis points, or 0.05 percentage point, to 6.07 percent, according to data compiled by Bloomberg. The price rose 0.52 centavo to 134.39 centavos per peso.

To contact the reporter 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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