Mexico’s peso climbed for the first time in four days as bonds rallied before comments from Federal Reserve Chairman Ben S. Bernanke on record monetary stimulus.
The peso rose 0.2 percent to 12.8649 per U.S. dollar at 10:31 a.m. in Mexico City. The increase was the currency’s first on a closing basis since June 13. Yields on peso bonds due in 2024 fell three basis points, or 0.03 percentage point, to 5.41 percent, according to data compiled by Bloomberg.
Investors have been dumping the bonds, fueling a tumble in the currency, amid speculation policy makers in the U.S., Mexico’s biggest trading partner, are preparing to taper monthly asset purchases. Under the Fed’s program, global holdings of Mexico’s fixed-rate government debt rose to a record even after the Latin American country’s central bank cut rates to 4 percent in March. Bernanke is scheduled to speak with reporters today after a policy meeting.
The market “is very much waiting for what happens with the Fed,” Mario Copca, a currency and fixed-income strategist at Metanalisis SA, said in a telephone interview from Mexico City. “If policy makers reiterate their position, that’s to say that the market liquidity can be sustained. Mexico can continue to be attractive because of the interest rates it offers and the exchange rate.”
The peso has lost 5.7 percent since the end of April as traders speculated whether the Fed will maintain its $85 billion in monthly bond buying. Mexico central bank Governor Agustin Carstens said in April that volatility in capital flows may spur an “overreaction” in the exchange rate.
The Federal Open Market Committee is due to release its statement and economic forecasts at 2 p.m. in Washington. Bernanke said May 22 that the central bank may reduce the pace of its monthly bond purchases if there was sustainable improvement in employment. At the same time, he said a premature tightening of monetary policy might imperil the economic recovery.
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