Bloomberg News

Mexican Peso Posts Worst Week Since June on U.S. Concern

November 09, 2012

Mexico’s peso posted its biggest weekly drop in five months as inflation slowed and scheduled U.S. tax increases and spending cuts threatened to stall the largest economy and hurt the Latin American country’s exports.

The peso fell 0.2 percent to 13.2003 per dollar at 4 p.m. in Mexico City. The currency finished the week with a decline of 1.2 percent, the steepest since the five days ended June 1. The five-day slump was the biggest among the greenback’s 16 most- traded counterparts after the New Zealand dollar.

“After the U.S. elections, we once again saw people focusing on the fiscal cliff,” Eduardo Suarez, a Latin America strategist at Bank of Nova Scotia, said in a phone interview from Toronto.

U.S. President Barack Obama, who won re-election Nov. 6, is facing more than $600 billion of tax increases and spending cuts that take effect in January if lawmakers fail to reach a compromise. Mexico, which sends about 80 percent of its exports to its northern neighbor, stands to suffer from measures projected to send the world’s biggest economy into recession in the first half of 2013.

Mexico’s annual inflation slowed last month for the first time since April, the national statistics institute reported yesterday. Consumer prices rose 4.60 percent in October from a year earlier compared with 4.77 percent in the prior month.

Rate Outlook

Yields on interbank rate futures contracts due in February 2013 fell 0.06 percentage point yesterday, indicating traders no longer expect the central bank to lift borrowing costs from a record low 4.5 percent at the March meeting.

The inflation report “pared down expectations of rate hikes,” Suarez said.

Yields on peso bonds due in 2024 fell seven basis points today, or 0.07 percentage point, to 5.42 percent, extending the weekly drop to 19 basis points, according to data compiled by Bloomberg. The price has climbed 1.98 centavos to 140.53 centavos per peso this week.

To contact the reporter on this story: Jonathan J. Levin in Mexico City at jlevin20@bloomberg.net

To contact the editors responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net; Rob Urban at robprag@bloomberg.net


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