Mexican Peso Posts Biggest Weekly Drop Since August on Rate Speculation

Mexico’s peso is set to post its biggest weekly decline since August amid Europe’s debt crisis and speculation the country’s central bank may cut its benchmark interest rate.

The peso weakened 0.3 percent to 12.2407 per dollar at 10:49 a.m. New York time, declining the most since the period ended Aug. 27, from 12.2024 on Nov. 5. The peso has risen 6.9 percent this year against the dollar. It rose 0.2 percent today.

European Union members of the G-20 are meeting today as Irish bond yields are soaring on concern the EU will need to step in with a bailout. Speculation the crisis may worsen has staunched demand for riskier emerging-market assets, said Ramon Cordova, a currency strategist at Base Internacional Casa de Bolsa SA in Monterrey, Mexico.

“Again we’re seeing concern about European debt,” Cordova said in a telephone interview. “That’s hitting the market.”

Mexico’s central bank Governor Agustin Carstens said Nov. 10 that he “would consider adjusting our rates” if short-term portfolio inflows intensify and pressure the peso.

“What the Bank of Mexico is doing is transmitting a message to the market that they might lower the benchmark rate, and that obviously is negative for the peso,” Cordova said. “I don’t think there’s room to cut the rate right now.”

The yield on Mexico’s 10 percent bond due in 2024 rose 4 basis points, or 0.04 percentage point, today to 6.57 percent, according to Banco Santander SA. The price of the security fell 0.44 centavo to 131.42 centavos per peso.

To contact the reporter on this story: Jonathan J. Levin in Mexico City at Jlevin20@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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