Mexico’s Peso Volatility Declines on U.S. Budget Deal Optimism

Mexico’s peso volatility fell to a 20-month low amid optimism that U.S. leaders will reach a budget deal and avoid a possible economic slowdown in the Latin American nation’s top export market.

One-month historical volatility, which measures the magnitude of the peso’s fluctuations over the period, sank to 7.3 percent at 9:14 a.m. in Mexico City, the lowest on a closing basis since April 2011, according to data compiled by Bloomberg. The peso depreciated 0.2 percent to 12.7440 per U.S. dollar, snapping a two-day advance.

While the peso has strengthened recently on speculation U.S. leaders are moving closer to a deal to avoid automatic tax increases and spending cuts, gains will be limited without an agreement, according to Rafael Camarena, an economist at Grupo Financiero Santander Mexico SAB. Should officials fail to reach an accord, the spending cuts and tax boosts may result in a recession next year in the U.S., according to the Congressional Budget office.

The peso “is stabilizing at these levels,” Camarena said by telephone from Mexico City. “Until we see more concrete announcements in the U.S. we could have it stay around here.”

President Barack Obama and House Speaker John Boehner are negotiating a budget compromise to avoid more than $600 million in tax increases and spending cuts scheduled to take effect Jan. 1. The U.S. current-account deficit narrowed in the third quarter, helped by slowing imports, according to report from the Commerce Department released today. The U.S. buys about 80 percent of Mexico’s exports.

Yields on peso-denominated bonds due in 2024 were little changed at 5.47 percent today, according to data compiled by Bloomberg.

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

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

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