Mexican Peso Plunges Most Among Major Currencies on Fed Concern

Mexico’s peso tumbled the most among major currencies after Federal Reserve policy makers indicated they won’t take into account the fallout in emerging markets as they pare back U.S. monetary stimulus.

The currency fell 1.7 percent to 13.1879 per U.S. dollar at 4 p.m. in Mexico City. The currency’s decline today is the most among the dollar’s 31 most-traded counterparts.

Developing nations will need to “adjust” to U.S. stimulus tapering, Dennis Lockhart, president of the Atlanta Fed, said at a meeting of central bankers and economists in Jackson Hole, Wyoming that ended Aug. 24. Mexico central bank Governor Agustin Carstens had asked the Fed to clarify plans for tapering its $85 billion in monthly bond buys. The peso is also falling on concern education overhaul protests will make it harder for President Enrique Pena Nieto to pass energy law reforms, said Pedro Tuesta, a Latin America economist at 4cast Ltd.

“You see the teachers making big demonstrations,” Tuesta said in a telephone interview from Washington. “The market is not very happy with all of these developments and it’s feeding into this pessimism.”

The protesters oppose a law that would require teachers to pass exams. While rallies that blocked congressional buildings and the airport have moved on, the protesters remain camped out in Mexico City’s main plaza and today forced the closure of the capital’s central boulevard to some traffic.

Bond Yields

Yields on Mexico’s benchmark peso bonds due in 2024 rose seven basis points, or 0.07 percentage point, to 6.26 percent today, according to data compiled by Bloomberg. The price fell 0.66 centavo to 130.25 centavos per peso.

The yields touched a record low on May 9 in part on expectations that Pena Nieto will succeed in passing legal reforms to boost growth. Since then they have surged 1.78 percentage points, after his energy proposal didn’t go as far as a rival plan, while concern mounted about the Fed cutting the pace of its bond purchases.

James Bullard, president of the St. Louis Fed, said in an interview with Bloomberg Radio that the domestic economy is the primary objective of policy. The Fed will pare its monthly bond purchases at its Sept. 17-18 meeting, according to 65 percent of economists surveyed by Bloomberg.