Mexico Peso Posts Best Month Since March 2009 on Asset Demand

Mexico’s peso completed its best month in almost three years as the outlook for near-zero interest rates to persist in the U.S. boosted demand for the Latin American country’s higher-yielding assets.

The peso strengthened 6.8 percent in January, its biggest monthly increase since March 2009. The currency fell 0.5 percent today to 13.0456 per U.S. dollar at the close in Mexico City, from 12.9776 yesterday.

The currency has rallied this month as investors buy securities from Mexico, which kept its overnight rate at 4.5 percent this month while the Federal Reserve pledged to maintain near-zero rates through at least late 2014. Concern over how Europe’s debt crisis would affect demand for Mexican exports helped make the peso Latin America’s worst-performer in 2011.

“The rhythm of the depreciation was very strong at the end of the year and the peso is simply, for one, catching up,” Ramon Cordova, a currency trader at Banco Base SA in Monterrey, Mexico, said by phone. The peso has surged as investor confidence grows that Mexico “fundamentally is in good shape and the U.S. is growing as well,” he said.

The world’s biggest economy may expand 2.3 percent this year from 1.7 percent in 2011, according to the median estimate of 72 economists surveyed by Bloomberg. Mexico sends about 80 percent of its exports to the U.S.

Mexico’s economy probably grew 3.7 percent in the fourth quarter from a year earlier and 4 percent in 2011, the Finance Ministry said in an e-mailed statement yesterday.

The yield on Mexico’s peso-denominated bonds due in 2024 declined one basis point, or 0.01 percentage point, to 6.18 percent today, according to data compiled by Bloomberg. The price of the securities rose 0.08 centavo to 133.82 centavos per peso.

Editors: Glenn J. Kalinoski, Jonathan Roeder

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