Mexican Peso Declines Most in Three Weeks on Economic Outlook

Aug. 11 (Bloomberg) -- Mexico’s peso fell the most in three weeks after the U.S. Federal Reserve said the economic recovery is slowing, reducing demand for higher-yielding, emerging-market assets.

The currency declined 1.2 percent to 12.7507 per dollar at 5 p.m. New York time, from 12.6017 yesterday. The decline pared the peso’s gain against the dollar this year to 2.6 percent, the third-best performer among the 16 major currencies tracked by Bloomberg, after Japan’s yen and Singapore’s dollar.

“The tacit admission from the Fed that things are turning worse is proving unhelpful for risk appetite,’ said Clyde Wardle, an emerging-market currency strategist at HSBC Holdings Plc. “We are seeing a broader contraction of risk appetite on the Feds downgrading of the U.S. recovery.”

The Fed left the overnight interbank lending rate target in a range of zero to 0.25 percent yesterday, where it’s been since December 2008. The pace of the economic recovery is likely to be “more modest,” the Federal Open Market Committee said yesterday.

The yield on Mexico’s 10 percent bonds due in 2024 fell six basis points, or 0.06 percentage point, to 6.761 percent, according to Banco Santander SA. The price of the security rose 0.61 centavo to 129.65 centavos per peso.

Traders didn’t trigger any of the dollar options available today, the central bank said on its website. So far this month, $417 million in options have been exercised.

The bank has been auctioning $600 million in options monthly, allowing it to purchase dollars as it seeks to boost foreign reserves after the peso dropped to a record low last year.

To contact the reporter on this story: Andres R. Martinez in Mexico City at amartinez28@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net