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Mexico Peso Surges on Economic Confidence, Reserve Speculation

Jan. 10 (Bloomberg) -- Mexico’s peso rose to a 10-month high on stronger-than-forecast economic growth and bets the central bank is considering changing the international reserve strategy that pushed holdings to a record last month.

The peso climbed the most among major Latin American currencies after the government said the economy expanded in October from a year earlier at the fastest pace since July. The currency also rallied over the past two days as investors speculated that the Finance Ministry and central bank may move to slow the pace at which policy makers add to $163 billion in reserves, which would support the peso, according to HSBC Holdings Plc.

“It’s certainly caught the market’s attention,” Clyde Wardle, an emerging-markets foreign-exchange strategist at HSBC, said by phone from New York. “It has helped sentiment at a time when you’ve had some other positive news.”

The peso rose 0.9 percent to 12.6058 per dollar at 4 p.m. in Mexico City, the strongest close since March 13. It has rallied 2 percent this year, the most among major Latin American currencies.

Some investors took Deputy Finance Minister Miguel Messmacher’s comment on Jan. 4 about government reviews of the costs of Mexico’s reserves policy to imply a potential change in the country’s strategy, HSBC analysts said in a note to clients today. While the change probably won’t happen soon, the “bias may be toward reducing the pace of foreign reserves’ buildup,” the analysts wrote.

The number of wagers in the futures market by hedge funds and other large speculators on a gain in the peso outnumbered bets on a drop by 141,752 last week, up from 86,787 in November, according to the Commodity Futures Trading Commission.

Finance Minister Luis Videgaray told reporters Mexico “is not modifying the policy of reserve accumulation” following an event today in Mexico City.

The central bank declined to comment on potential changes to the nation’s reserve accumulation strategy in an e-mail.

‘Big Players’

“Big players are getting into the peso,” Ramon Cordova, a currency trader at Banco Base SA in San Pedro Garza Garcia, Mexico, said in a phone interview. Economic growth “is an additional push.”

The yield on fixed-rated peso bonds due in 2024 fell three basis points, or 0.03 percentage point, to 5.47 percent today, according to data compiled by Bloomberg. The price rose 0.31 centavo to 139.62 centavos per peso.

Mexico’s economy expanded 4.33 percent in October from a year earlier, the national statistics agency said today. The increase in the global economic indicator, a proxy for gross domestic product, was projected by analysts to be 3.85 percent, according to the median of 16 forecasts in a Bloomberg survey.

To contact the reporters on this story: Ben Bain in Mexico City at bbain2@bloomberg.net; Nacha Cattan in Mexico City at ncattan@bloomberg.net

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

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