Mexico Peso Volatility Declines to Three-Week Low on Fed Outlook

Mexico peso volatility dropped to a three-week low as Federal Reserve Chairman Ben S. Bernanke said U.S. policy makers will probably hold down borrowing costs long after ending monthly bond purchases.

One-month historical volatility, a gauge of the size of the peso’s fluctuations during the period, fell to 11.22 percent at 10:14 a.m. in Mexico City, the lowest level on a closing basis since Oct. 29, according to data compiled by Bloomberg. The peso gained 0.4 percent to 12.9185 per dollar.

While economists polled by Bloomberg News are calling for the Fed to pare its $85 billion in monthly asset buying in March, Bernanke said yesterday “the target for the federal funds rate is likely to remain near zero for a considerable time after the asset purchases end.” Janet Yellen, the nominee to replace Bernanke, signaled last week that she would maintain the purchases until she sees a robust U.S. recovery.

The peso “is in a period of consolidation,” Eduardo Rodriguez, a trader at Casa de Bolsa Finamex SAB, said in a telephone interview from Guadalajara, Mexico. “Even though Bernanke reaffirmed low rates for a long period of time, that didn’t come as a surprise.”

The currency briefly pared its gain today as a report showed Mexico’s retail sales dropped more than forecast, missing analysts’ estimates for the fourth time in five months.

Retail sales tumbled 4 percent in September from a year earlier, the national statistics agency reported today. The median projection of 20 analysts surveyed by Bloomberg was for a 2.5 percent decline.

Yields on peso bonds due in 2024 dropped four basis points, or 0.04 percentage point, to 6.10 percent, the lowest since Nov. 4, 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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