Mexico Peso Drops as U.S. Budget Wrangling Damps Export Outlook

Mexico’s peso weakened the most in five weeks as a standoff in U.S. budget negotiations threatened the economic outlook for the Latin American country’s biggest trading partner.

The peso weakened 0.5 percent, its biggest daily decline since Nov. 8, to 12.8025 per U.S. dollar today, according to data compiled by Bloomberg. Its rally this year of 8.9 percent is still the biggest gain among the greenback’s 16 most-traded counterparts.

Mexico’s peso weakened along with most emerging-market currencies today as speculation mounted that U.S. House Speaker John Boehner and President Barack Obama weren’t making progress on a spending plan for the world’s biggest economy. The two leaders are in talks to forge a compromise to avoid more than $600 billion in tax increases and spending cuts that will start taking effect in January unless Congress averts them. Mexico sends about 80 percent of its exports to the U.S.

“Until we get some resolution out of Washington we can expect to see continued intraday volatility with a bias to more profit taken on negative headlines,” Alejandro Silva, who helps oversee about $800 million of emerging-market assets, including the peso, at Silva Capital Management in Chicago, said in an e- mailed response to questions. “Positioning in the peso is crowded.”

Bullish bets on the peso last week outnumbered those for a decline by the most since October, according to the Commodity Futures Trading Commission. The number of wagers by hedge funds and other large speculators for a gain in the peso outnumbered those for a decrease in the futures market by 118,962.

Yields on Mexico’s peso bonds due in 2024 were little changed at 5.48 percent, according to data compiled by Bloomberg. The price fell 0.06 centavo to 139.66 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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