Mexico Peso Falls as Fed Concern Outweighs Local Growth Outlook

Mexico’s peso fell as mounting concern that the U.S. Federal Reserve will reduce stimulus outweighed speculation that lawmakers in the Latin American country will pass legislation to boost economic growth.

The peso slumped 0.7 percent, the worst performance among six major Latin American currencies, to 12.8498 per dollar at 10:23 a.m. in Mexico City, according to data compiled by Bloomberg. The decline pared this month’s advance to 0.6 percent.

The peso slumped along with most of its emerging-market peers before the Fed announces monetary policy later today. A report earlier showed the U.S. economy grew more than projected in the second quarter. Speculation that the U.S. central bank may trim its $85 billion in monthly bond purchases has fueled a slump in Mexican securities even as the Latin American country’s government signals progress toward changes in the nation’s energy and tax laws intended to boost growth.

Speculation that “the Fed will reduce stimulus is what’s affecting the market more than the positive sentiment regarding Mexico passing reforms,” Agustin Villarreal, fixed-income and foreign exchange director at Grupo Financiero Invex SA in Mexico City, said in a telephone interview. “At the end of the day it’s a global environment more than a Mexico-specific situation.”

The yield on Mexican government peso bonds maturing in 2024 jumped six basis points, or 0.06 percentage point, to 6.07 percent, according to data compiled by Bloomberg. The yield has risen 26 basis points this month, headed for a third straight monthly increase.

U.S. GDP

U.S. gross domestic product, the value of all goods and services produced, rose at a 1.7 percent annualized rate, after a 1.1 percent gain the prior quarter, Commerce Department figures showed today in Washington. The median forecast of 85 economists surveyed by Bloomberg called for a 1 percent advance for last quarter. Companies increased payrolls in July by the most this year a separate report from the ADP Research Institute.

The peso pared losses today after Senator Salvador Vega, an opposition leader on the Energy Committee, said in a telephone interview that his National Action Party will present an energy overhaul proposal today that would open the door for selling shares in state-owned Petroleos Mexicanos. President Enrique Pena Nieto has pledged to pass legislative changes to open the nation’s state-owned oil monopoly to more private investment and boost tax collection.

Pena Nieto said in an interview in London last month that his administration will send bills to overhaul energy and tax policies in September and that the so-called Pact for Mexico alliance between the nation’s three leading political parties will assure approval by Congress to end the government’s monopoly on oil production before year-end.

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

To contact the editor responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net

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