Mexico Peso Gains as Bonds Rally on Outlook for U.S. Stimulus

Mexico’s peso strengthened the most in two weeks after smaller-than-forecast gains for the U.S. jobs market eased concern the Federal Reserve will reduce stimulus and a ruling party lawmaker said a pending energy bill will seek to change the constitution.

The peso jumped 1.3 percent to 12.6625 per dollar, posting the biggest gain on a closing basis since July 17. The currency was little changed this week. Yields on Mexican government peso bonds maturing in 2024 fell 19 basis points, or 0.19 percentage point, to 5.81 percent, according to data compiled by Bloomberg.

Mexico’s local-currency securities rallied along with U.S. Treasuries after the Labor Department said payrolls increased 162,000 last month, the smallest increase in four months and compared with a median forecast for a 185,000 gain among economists surveyed by Bloomberg. Mexican President Enrique Pena Nieto is expected to propose a constitutional amendment next week that would offer oil sharing contracts to private companies, Congressman Javier Trevino said yesterday in an interview.

“It’s really a product of the uncertainty about how certain it is that the U.S. economy is recovering and how soon the Federal Reserve will begin reducing stimulus,” Salvador Orozco, deputy director for money markets and exchange at Grupo Financiero Santander Mexico SAB, said by phone from Mexico City. “What the market thinks is that maybe the Fed won’t act as soon as September.”

Stimulus Maintained

In a statement accompanying its monetary policy decision, the Federal Open Market Committee said July 31 that it will maintain its $85 billion in monthly bond buying. Half of the economists surveyed by Bloomberg in a July 18-22 poll said the Fed will trim its monthly bond buying to $65 billion in September.

Policy makers also left unchanged their commitment to hold the target lending rate near zero as long as the jobless rate remains above 6.5 percent and the outlook for inflation over one to two years doesn’t exceed 2.5 percent.

After today’s Labor Department report, the U.S. unemployment rate is 7.4 percent.

The peso’s advance today was the second-biggest among the dollar’s 16 most-traded counterparts, according to data compiled by Bloomberg.

Oil Bill

President Enrique Pena Nieto will probably seek to amend key articles of the constitution to break the nation’s state monopoly on oil exploration and production, ruling party lawmaker Javier Trevino said in an interview yesterday.

The comments extended the peso’s gain, according to Alejandro Urbina, a money manager at Silva Capital Management, which oversees $800 million in emerging-market assets. The currency also advanced on mounting speculation that lawmakers will agree to overhaul the state-controlled energy industry in a bid to boost economic growth, Santander’s Orozco said.

The bill by Pena Nieto and his Institutional Revolutionary Party will be presented next week in the Senate. The government’s proposal will follow a bill presented July 31 by the opposition National Action Party that seeks concessions for private companies to explore and produce oil.

Foreign investors boosted holdings of peso bonds to a record earlier this year as they sought to profit from Mexico’s higher-yielding securities amid near-zero rates at home.

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