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Mexico Peso Drops After Fed Signals No Plans for Monetary Easing

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April 3 (Bloomberg) -- Mexico’s peso fell after minutes of the Federal Reserve’s March policy meeting indicated the central bank didn’t see a need for more monetary stimulus unless growth slows.

The peso depreciated 0.2 percent to 12.7632 per dollar at 4 p.m. in Mexico City, from 12.7326 yesterday. The Mexican currency has rallied 9.2 percent in 2012, the biggest increase among the 16 most-traded currencies tracked by Bloomberg.

The Fed minutes released today show policy makers see less urgency to add monetary stimulus given the outlook for inflation and growth. The central bank on March 13 reiterated its plan to hold interest rates at virtually zero at least through late 2014. The U.S. economy is the destination for 80 percent of Mexico’s exports.

“The Mexican peso is just responding to the broader reversal in risk appetite we’ve seen after the minutes,” Siobhan Morden, head of Latin America strategy at Jefferies & Co. in New York, said in a telephone interview. “Mexico clearly is the most sensitive to risk appetite for being one of the more globally integrated markets and at the same time having a high economic correlation to the Fed.”

The yield on Mexico’s peso-denominated debt due in 2024 rose two basis points, or 0.02 percentage point, to 6.45 percent, according to data compiled by Bloomberg. The bonds’ price dropped 0.26 centavo to 130.66 centavos per peso.

Yields on the bonds earlier in the day fell to a three-week low as the Mexican central bank reported a record level of international reserves, bolstering confidence in Latin America’s second-biggest economy. Mexico’s foreign reserves rose to $150.3 billion in the week ended March 30, the central bank reported today.

The Mexican debt slumped later in the day as yields on U.S. Treasuries surged after the minutes were released, according to Morden. Yields on 10-year U.S. Treasury notes increased 12 basis points to 2.30 percent, after falling as much as three basis points.

To contact the reporter on this story: Ben Bain in New York at bbain2@bloomberg.net

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

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