Mexican Peso Retreats as Investors Await Policy Maker Action

Mexico’s peso fell from its strongest level in a week as investors weighed whether policy makers will take additional steps to shore up the weakening global economy.

The peso declined 0.2 percent to 13.2649 per U.S. dollar at 4 p.m. in Mexico City, paring its gain this year to 5.1 percent, the most among the 16 major currencies tracked by Bloomberg. The currency has rallied 0.7 percent in July and it earlier touched 13.2081 in intraday trading, the strongest since July 20.

European Central Bank President Mario Draghi prepared to meet with U.S. Treasury Secretary Timothy Geithner today after sparking a global market rally by pledging to do whatever it takes to preserve the euro. Federal Reserve policy makers meet this week to decide whether additional stimulus is needed to spark growth in the world’s biggest economy.

“We’re going to have a lot of headline risk this week,” Eduardo Suarez, a currency strategist at Bank of Nova Scotia, said by phone from Toronto. “People are not putting on anything because it’s hard to have any strong conviction on any trade when there’s so much headline risk.”

Speculation that the European crisis would hurt Mexican exports helped make the peso Latin America’s worst-performing major currency in 2011. Mexico depends on exports for about 30 percent of its gross domestic product, and sends 80 percent of them to its northern neighbor.

The yield on Mexican local-currency bonds due in 2024 declined three basis points, or 0.03 percentage point, to 5.35 percent, according to data compiled by Bloomberg. The price rose 0.28 centavo to 142.00 centavos per peso.

Bond Swap

Mexico will swap out as much as 22 billion pesos of fixed-rate bonds, the government’s first exchange of sovereign debt since September, the central bank said today.

The nation’s central bank will oversee an auction on Aug. 1 of bonds maturing in 2016, 2017, 2018 and 2024. Bondholders can offer debt maturing in 2014, 2015, 2016, 2020, 2021 and 2027 for the new securities, according to a statement posted today on the central bank’s website.

Banco de Mexico, as the central bank is known, will oversee the auction for the Finance Ministry.

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