Mexico’s Peso Strengthens on Speculation Fed to Spur U.S. Growth

Mexico’s peso rose the most in four days after falling U.S. consumer prices fueled speculation the Federal Reserve will act to spur growth in the economy of the Latin American country’s biggest trading partner.

The peso appreciated 1 percent to 13.9003 per dollar at 4 p.m. in Mexico City. It was the biggest rally since June 8.

U.S. reports before the Fed’s meeting next week showed consumer prices fell 0.3 percent in May, the most in more than three years, and initial jobless claims unexpectedly climbed by 6,000 to 386,000 last week. Mexico depends on exports for about 30 percent of its gross domestic product, sending 80 percent of them to its northern neighbor.

“It’s a given that every time we get weak data here in the U.S., QE3 talk begins to increase,” Aryam Vazquez, an economist for global emerging markets at Wells Fargo & Co., said in an e-mailed message. “These robust liquidity prospects certainly aid emerging-market assets such as the Mexican peso.”

Pacific Investment Management Co.’s Neel Kashkari said today at the Bloomberg Asset Management Summit in Boston that the Fed will probably start a third round of quantitative easing, known as QE3.

The peso extended its rally amid reports of plans by central banks. Bloomberg News reported that U.K. Chancellor of the Exchequer George Osborne and Bank of England Governor Mervyn King are preparing two programs to increase the flow of credit.

Reuters reported that central banks are prepared to coordinate actions if needed to boost liquidity in financial markets. The news service cited officials linked to the Group of 20 nations. Mexico will host a G-20 summit in the resort town of Los Cabos on June 18-19.

Concern over how Europe’s debt crisis would drag on the global economy and affect demand for Mexican exports has helped fuel a 6.4 percent decline in the peso since the end of April.

The yield on Mexican local-currency bonds due in 2024 declined three basis points, or 0.03 percentage point, to 6.07 percent, according to data compiled by Bloomberg. The price rose 0.38 centavo to 134.38 centavos per peso.

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