Mexican Peso Declines as Europe’s Debt Crisis Erodes Demand

Mexico’s peso fell as demand for the country’s higher-yielding assets declined after a German official said Europe’s largest economy rejected combining euro-area rescue funds.

The peso declined 0.2 percent to 13.5107 per U.S. dollar at close in Mexico City, from 13.4823 yesterday. It has weakened 8.7 percent this year.

Germany will oppose any attempt to change plans for the permanent European Stability Mechanism to take over from the current rescue fund at an appointed time, a German official told reporters in Berlin today on condition of anonymity because the negotiations are private. The Mexican peso has declined 13 percent in the past six months, the worst performance among Latin America’s major currencies.

“The correlation with the externals has been quite clear, and that’s why the market would be willing to trade it in the short-term,” Flavia Cattan-Naslausky, a currency strategist at RBS Securities Inc. in Stamford, Connecticut, said by phone. “The Germans made some kind of negative comments. The whole market is kind of reacting to that.”

Standard & Poor’s said earlier this week that Germany and France may be stripped of their top credit ratings, and today put the European Union’s AAA rating on CreditWatch negative.

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.

Bond Auction

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

The yield on Mexico’s benchmark peso-denominated bond due in 2024 fell one basis points, or 0.01 percentage point, to 6.53 percent, according to data compiled by Bloomberg. The price of the security rose 0.14 centavo to 130.32 centavos per peso.

Mexico sold all of the 6.5 billion pesos ($481 million) of 28-day Cetes it offered at auction yesterday, according to the central bank. The government sold all of the 7.5 billion pesos of 91-day bills and all of the 8 billion pesos of 175-day Cetes, the bank said yesterday on its website.

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