Mexico’s peso rose after U.S. data showed a pickup in hiring and manufacturing, boosting economic prospects in the Latin American nation’s top export market.
The peso climbed 0.8 percent to 12.6062 per U.S. dollar at 4 p.m. in Mexico City. The currency rose 2 percent this week.
The peso strengthened as the readings on the U.S. economy outweighed comments from Mexico’s central bank board indicating that policy makers might cut rates.
“It’s all about the U.S. data,” Gabriel Casillas, the chief economist and head of research at Grupo Financiero Banorte SAB in Mexico City, said in a telephone interview.
U.S. payrolls rose 157,000 in January following a revised 196,000 advance in the prior month and a surge of 247,000 in November, the Labor Department said today. The Institute for Supply Management’s manufacturing index climbed to 53.1 last month from 50.2 in December, exceeding the highest estimate among 86 economists surveyed by Bloomberg. Mexico sends about 80 percent of its exports to the world’s biggest economy.
Mexico’s policy makers were unanimous in their decision to keep the benchmark interest rate at 4.5 percent two weeks ago, saying slower inflation appears to be gaining traction in the second-largest Latin American economy, according to central bank minutes published today.
“The downward trend in general and core inflation appears to be confirming itself, based on healthy fundamentals,” the central bank said in the minutes. “If the outlook described is consolidated, a reduction in the benchmark overnight interbank interest rate may be advisable.”
The annual rate of consumer price increases dropped more than economists expected to a 15-month low of 3.21 percent in the first half of January after falling in December within the central bank’s target range for the first time since May.
Short-term fixed-rate bond yields tumbled as speculation for a rate cut mounted. Yields on peso bonds due in 2014 tumbled eight basis points, or 0.08 percentage point, 4.38 percent, according to data compiled by Bloomberg. It’s the lowest yield on a closing basis ever for the security since it was issued in 2005.
Grupo Financiero Banorte SAB changed its forecast today, saying the central bank will probably cut the reference rate by as much as 75 basis points at its next meeting in March.
Goldman Sachs Group Inc. is “currently assessing close to a 50 percent chance of 50 basis points of easing over the next six months,” although it will keep reviewing inflation figures going forward to decide its position, economist Alberto Ramos said in an e-mailed research note after the minutes were released.
Alejandro Urbina, who helps oversee about $800 million in emerging-market assets at Silva Capital Management, said in a telephone interview from Independence, Iowa that the bonds rallied as some banks interpreted the minutes as being “very, very dovish.”
The peso weakened as much as 0.4 percent earlier today amid speculation that a deadly explosion yesterday at the headquarters of state-owned oil company Petroleos Mexicanos SAB was the product of a criminal attack, according to Eduardo Carrillo, a fixed-income trader at Casa de Bolsa Finamex SAB. The market “overreacted” to the news, Carrillo said in a telephone interview from Guadalajara, Mexico.
The inquiry into the explosion continues, and no cause has been determined, Pemex Chief Executive Officer Emilio Lozoya said.
Yields on peso bonds due in 2024 fell six basis points, or 0.06 percentage point, to 5.13 percent, according to data compiled by Bloomberg. The price rose 0.69 centavo to 143.28 centavos per peso.
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