The peso depreciated 0.3 percent to 12.2304 per U.S. dollar at 9:54 a.m. in Mexico City, paring its rally this year to 5.1 percent, still the biggest among 16 major currencies tracked by Bloomberg.
The peso dropped today as the Federal Reserve reported that industrial production in the U.S., Mexico’s biggest trading partner, fell in April by the most in eight months. Mexico’s output slid in March three times more than analysts had forecast, a report showed last week. Mexico sends about 80 percent of its exports to its northern neighbor.
“Concerns about the state of the global economy” have been fueling the peso’s drop, Aryam Vazquez, a global emerging-markets economist at Wells Fargo & Co. in New York, said in a telephone interview. “The data mix in Mexico hasn’t been too robust and certainly speaks to a slowing economy, and that certainly opens up the debate concerning the central bank and whether it’s going to take action a lot sooner than many had expected.”
Central bank board members said in minutes of their April 26 policy meeting, published on May 10, that “there are downside risks to growth” for Mexico. Policy makers left the target lending rate at a record low 4 percent last month after cutting it by a half-percentage point on March 8.
Yields on six-month swaps tied to the interbank rate have fallen 0.07 percentage point to 4.21 percent after central bank Governor Agustin Carstens signaled in an April 29 radio interview that the bank may consider more reducing borrowing costs if inflation eases. That level of swap rates indicates that traders project a 52 percent chance of a cut by October. As recently as May 3, traders saw a 32 percent chance.
Annual inflation in Latin America’s second-biggest economy was 4.65 percent in April, above the nation’s 2 percent to 4 percent target range.
The yield on peso bonds due in 2024 fell two basis points, or 0.02 percentage point, to 4.67 percent, according to data compiled by Bloomberg. The price rose 0.27 centavo to 147.67 centavos per peso.
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