Bloomberg News

Mexico Peso Rises on Speculation Europe Rescue May Be Fortified

July 25, 2012

Mexico’s peso rose for the first time in a week on speculation Europe’s permanent bailout fund will be strengthened, boosting demand for higher-yielding assets.

The peso climbed 0.3 percent to 13.6655 per dollar at 11 a.m. in Mexico City, bringing its rally this year to 2 percent, the second-biggest among the most-traded currencies tracked by Bloomberg.

European Central Bank council member Ewald Nowotny said there are arguments in favor of giving Europe’s rescue fund a banking license, reviving the debate on boosting its capacity.

“The market has taken a turn and is using the peso as a risk proxy for emerging markets,” Ramon Cordova, a currency trader at Banco Base SA in San Pedro Garza Garcia, Mexico, said in a phone interview. “If a headline comes out with a good comment, you’ll see quick drops in the dollar and rises in the peso.”

Granting a banking license to the European Stability Mechanism would give it access to ECB lending, easing concern its 500 billion-euro ($606 billion) cash reserves won’t be enough if Spain or Italy require aid.

Speculation that the European crisis would hurt the market for Mexican exports helped make the peso Latin America’s worst- performing major currency in 2011.

The peso pared its rally after data from the U.S. Commerce Department showed demand for new U.S. homes dropped in June from a two-year high.

Mexico depends on exports for about 30 percent of its gross domestic product, sending 80 percent of them to its northern neighbor.

The yield on Mexican local-currency bonds due in 2024 was little changed at 5.22 percent, according to data compiled by Bloomberg. The price rose 0.07 centavo to 143.56 centavos per peso.

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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