Mexico’s Peso Drops on Concern Global Economy to Remain Sluggish

Mexico’s peso fell to a one-week low as concern that policy makers won’t be able to jump-start the global economic expansion damped the outlook for the Latin American country’s exports.

The peso depreciated 0.4 percent to 13.9212 per dollar at 4 p.m. in Mexico City after touching 13.9762, the weakest level since June 14. Today’s slump pared this year’s gain to 0.1 percent. It’s lost 8 percent this quarter.

Mexico’s currency slid as the Bank for International Settlements said policy makers face the limit of their ability to boost growth. A gauge of regional manufacturing in the U.S., the destination of 80 percent of Mexico’s exports, fell to its lowest level since August, a report showed last week.

“Slower growth in U.S. economic activity is being discounted in the peso,” Mario Copca, a currency strategist at Metanalisis SA, said in phone interview from Mexico City. “The economic outlook in the U.S. is being modified a bit.”

The peso weakened as European leaders prepared for a summit this week at which they will try to stem the sovereign-debt crisis, which helped make the peso Latin America’s worst- performing major currency last year.

A majority of Mexico’s central bank board members said the balance of risks for Mexican growth had deteriorated, according to the minutes of this month’s Banco de Mexico policy meeting that were released June 22.

Speaking in an interview with Mexico City-based Radio Formula broadcast last week, central bank Governor Agustin Carstens narrowed his economic growth forecast for this year. Gross domestic product will expand 3.5 percent to 4 percent, with growth closer to 4 percent if the U.S. recovers quickly, Carstens said. The bank forecast growth of 3.25 percent to 4.25 percent on May 16.

Bond Yield

The Federal Reserve Bank of Philadelphia reported on June 21 that its general economic index fell to minus 16.6 this month from minus 5.8 in May. Zero is the dividing line between growth and contraction for manufacturers in eastern Pennsylvania, southern New Jersey and Delaware.

The yield on Mexican local-currency bonds due in 2024 rose five basis points, or 0.05 percentage point, to 5.68 percent, according to data compiled by Bloomberg. The price fell 0.58 centavo to 138.59 centavos per peso.

To contact the reporter on this story: Ben Bain in New York at bbain2@bloomberg.net

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

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