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Mexican Peso Plunges as Wagers on More U.S. Stimulus Tossed Out

Mexico’s peso dropped the most in three months on speculation the Federal Reserve won’t take additional steps to boost the economy that’s the destination of 80 percent of the Latin American country’s exports.

The peso weakened 1.3 percent to 12.7265 per U.S. dollar at 3 p.m. in Mexico City, from 12.5592 yesterday, paring its advance this year to 9.5 percent, still the most among major currencies tracked by Bloomberg. It was the biggest daily decline since Dec. 12.

The Fed said yesterday that strains in global financial markets have eased and the labor market in world’s biggest economy is gathering strength. The comments reduced speculation U.S. policy makers will resume buying bonds to stimulate U.S. growth, which would increase the dollar supply and fuel demand for higher-yielding Mexican assets.

“The good data shows that the U.S. doesn’t still need injections of cash and in that sense we’re seeing these corrections,” Mario Copca, a currency strategist at Metanalisis SA, said by phone from Mexico City. While the scenario isn’t bad and the peso may continue to strengthen “today what we’re incorporating is a correction in the strong appreciation that we’ve had.”

The Federal Reserve yesterday kept its benchmark interest rate target in a range of zero to 0.25 percent, where it’s been since December 2008.

Yields on shorter-maturity Mexican peso bonds rose to a one-week high as better-than-forecast economic data in the U.S and Mexico fueled speculation that Banco de Mexico policy makers won’t cut rates in 2012.

Industrial Production

The yield on Mexico’s peso-denominated debt due in December 2013 rose three basis points, or 0.03 percentage point, to 4.8 percent, according to data compiled by Bloomberg. It’s the highest close for the yield since March 6. The price fell 0.05 centavo to 105.41 centavos per peso.

The debt is slumping after better-than-forecast data on Mexican industrial production this week boosted optimism in Latin America’s second-biggest economy, adding to speculation the central bank won’t move to boost growth in 2012, according to Pedro Tuesta, a Washington-based Latin America economist at 4Cast Inc. Mexican policy makers are scheduled to release their rate decision on March 16.

“There’s no way to downplay the numbers,” Tuesta said by phone.

Mexican industrial production rose 4.2 percent in January from a year earlier, higher than all 16 analyst estimates in a Bloomberg survey, the national statistics agency said yesterday on its website. Retail sales in the U.S., the destination of 80 percent of Mexican exports, increased in February by the most in five months, Commerce Department figures showed yesterday.

All 19 economists surveyed by Bloomberg expect policy makers to keep rates unchanged this week at 4.5 percent.

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