Mexico Peso Gains on Speculation Europe to Solve Debt Crisis

Mexico’s peso touched a three-week high on speculation European leaders are moving closer to resolving the region’s debt crisis and after policy makers in the Latin American country left borrowing costs unchanged.

The peso advanced 0.8 percent to 13.5291 per U.S. dollar, from 13.6363 on Dec. 2. The currency earlier rose to 13.4474, the strongest level since Nov. 14. The peso has lost 8.8 percent this year, the second worst performance among major Latin American currencies tracked by Bloomberg.

German Chancellor Angela Merkel met French President Nicolas Sarkozy to advance a plan for stricter enforcement of the region’s deficit rules and Italian Prime Minister Mario Monti proposed budget cuts. Mexico’s policy makers kept the benchmark interest rate at 4.5 percent on Dec. 2 after growth in Latin America’s second-biggest economy accelerated and the government announced measures to support the peso.

“There’s favorable news out of Europe, the big worry a few days ago was Italy and it’s announcing a significant fiscal adjustment program,” Rafael Camarena, an economist at Banco Santander SA in Mexico City, said in a telephone interview. “The decision to not change interest rates along with the announcement from the currency-exchange commission on the domestic side and the news on the international front is making it so that the peso is under less pressure.”

Mexico’s currency-exchange commission said Nov. 29 the central bank will auction $400 million of its reserves daily at a peso exchange rate at least 2 percent weaker than the previous day’s level to arrest a slide in the currency.

Mexico’s central bank said it didn’t sell dollars or receive offers in the three auctions it held today.

Economic Growth

The Mexican economy grew 4.5 percent in the third quarter, up from 3.2 percent in the previous three months. Mexico economists raised their forecasts for growth this year in a monthly Bank of Mexico survey to 3.87 percent on Dec. 1 from 3.72 percent in the previous survey.

The yield on Mexico’s benchmark peso-denominated bond due in 2024 declined five basis points, or 0.05 percentage point, to 6.55 percent. The price of the security rose 0.48 centavo to 130.18 centavos per peso.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE