Mexico’s peso advanced the most in more than a week as the central bank refrained from lowering the target lending rate.
The currency appreciated 0.6 percent to 12.7315 per U.S. dollar at 11:08 a.m. in Mexico City, and was up by the same amount since May 31. Today’s advance was the biggest since May 27 on a closing basis.
Traders have pared bets that the central bank will cut borrowing costs in the second half of the year as annual inflation has remained above the 4 percent upper limit of the central bank’s target range. Policy makers maintained the overnight rate at a record low 4 percent today, citing risks that growth will slow further and that the recent volatility in the exchange rate may continue.
“The communique really doesn’t say anything about potential easings,” Luis Estrada, the head of currency and derivatives trading at Banco Ve Por Mas SA in Mexico City, said in a telephone interview. “It’s very neutral and maybe slightly on the hawkish side. They’re not really making an emphasis on any potential easing.”
The peso fluctuated earlier today as the national statistics agency reported that annual inflation slowed to 4.63 percent in May, still above the central bank’s target. A U.S. report showed employers added more jobs than forecast. Mexico’s northern neighbor is its biggest trading partner.
Yields on six-month interest-rate swaps declined one basis point, or 0.01 percentage point, to 4.28 percent, indicating traders see about a 24 percent chance the bank will lower borrowing costs by December. As recently as May 21, the likelihood was about 68 percent.
The yields on benchmark government bonds maturing in 2024 climbed three basis points to 5.38 percent, according to data compiled by Bloomberg.
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