Mexican peso volatility climbed to its highest level in almost 18 months on speculation the Federal Reserve will reduce a program of stimulus that has boosted demand for the Latin American country’s assets.
The currency depreciated 0.6 percent to 12.7395 per U.S. dollar at 9:31 a.m. in Mexico City. Three-month historical volatility, a measure of the peso’s fluctuations during the period, rose to 13.4 percent, the highest since February 2012, according to data compiled by Bloomberg.
Swings in the peso have widened on speculation that U.S. policy makers will slow the pace of $85 billion in monthly bond purchases starting this year. Fed policy makers are scheduled to meet for two days starting tomorrow.
“The whole tapering expectation, that’s been driving” volatility in the peso, Eduardo Suarez, a Latin America strategist at Bank of Nova Scotia, said in a telephone interview from Toronto. “They’re talking about reducing the pace at which they’re providing stimulus. That expectation is what has been weighing on emerging markets in general.”
The Fed will trim in September its monthly bond buying to $65 billion, according to half of the economists surveyed by Bloomberg in a July 18-22 survey.
The yield on government peso bonds maturing in 2024 increased one basis point, or 0.01 percentage point, to 5.93 percent, according to data compiled by Bloomberg.
Foreign holdings of fixed-rate peso bonds surged to a record earlier this year as investors tried to escape near-zero rates at home by buying Mexico’s higher-yielding securities.
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