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Mexico Peso Volatility Abates on Speculation Fed to Taper Slowly

Mexico peso volatility held within 0.01 percentage point of an eight-month low amid mounting speculation that the Federal Reserve will move slowly to cut stimulus that has boosted demand for emerging-market assets.

One-month historical volatility, a measure of the magnitude of the peso’s fluctuations during the period, was 9.02 percent at 9:57 a.m. in Mexico City, after dropping yesterday to 9.01 percent, the lowest since April. The peso gained 0.1 percent to 13.0702 per dollar today, according to data compiled by Bloomberg.

Peso volatility had surged to an 18-month high in July as concern mounted that the Fed might reduce the stimulus quickly. The U.S. central bank, which said in December it would trim monthly asset purchases by $10 billion to $75 billion, probably will pare the program by $10 billion at each of the six meetings scheduled through September, based on the median forecast of 42 economists surveyed by Bloomberg on Jan. 10.

The perspective among traders is “that at the end of the day the Fed’s reduction in monetary stimulus will be gradual,” Rafael Camarena, an economist at Grupo Financiero Santander Mexico SAB, said in a telephone interview from Mexico City.

Yields on fixed-rate peso bonds due in 2024 rose three points, or 0.03 percentage point, to 6.42 percent, according to data compiled by Bloomberg. The price fell 0.29 centavo to 128.02 centavos per peso.

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

To contact the editor responsible for this story: Bradley Keoun at bkeoun@bloomberg.net

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