Mexico’s peso posted its biggest weekly gain since January after Standard & Poor’s raised the outlook on its credit rating, fueling speculation that President Enrique Pena Nieto’s reform agenda will boost growth.
The peso rose 1.5 percent this week to 12.4342 per U.S. dollar. It touched an 18-month high on March 13, and this year’s 3.5 percent gain is the biggest among 16 major dollar counterparts after Brazil’s real. Mexico’s currency fell 0.1 percent today.
S&P raised the country’s outlook on March 12 to positive from stable, meaning its BBB rating is more likely to be raised than lowered. Pena Nieto’s economic policy, including plans to open the energy industry to more private investment and shore up the tax base, may improve growth prospects and increase Mexico’s “fiscal room for maneuver,” S&P analyst Lisa Schineller wrote in a report.
The prospect of economic overhauls passing congress this year “led Standard & Poor’s to say that they could review the credit rating because they see a greater probability that agreements can be reached over fiscal and energy reforms,” Rafael Camarena, an economist at Grupo Financiero Santander Mexico SAB, said in a telephone interview. “That’s what’s helping the exchange rate.” S&P’s BBB rating on Mexico is the second-lowest investment grade.
The peso slipped today after a report showed that confidence among U.S. consumers unexpectedly slumped in March. Mexico sends about 80 percent of its exports to its northern neighbor.
The Thomson Reuters/University of Michigan preliminary sentiment index for March fell to 71.8, the lowest level since December 2011, from 77.6 in the prior month. The median forecast of 67 economists surveyed by Bloomberg was for the gauge to increase to 78.
Yields on Mexico’s peso bonds due in 2024 rose four basis points, or 0.04 percentage point, to 4.96 percent today, paring the weekly decline to five basis points, according to data compiled by Bloomberg.