Mexican Peso Tumbles as Fed Minutes Revive U.S. Tapering Concern

Nov. 20 (Bloomberg) -- Mexico’s peso dropped the most in two weeks after U.S. policy makers signaled that they may soon reduce monthly bond purchases that have fueled demand for the Latin American nation’s assets.

The peso depreciated 1 percent to 13.0924 per dollar at 4 p.m. in Mexico City. Yields on peso bonds due in 2024 climbed three basis points, or 0.03 percentage point, to 6.17 percent, according to data compiled by Bloomberg.

The currency dropped along with most emerging-market dollar counterparts after U.S. policy makers said in minutes that they “expected that the data would prove consistent with the Committee’s outlook for ongoing improvement in labor market conditions and would thus warrant trimming the pace of purchases in coming months.” The $85 billion in monthly bond buying helped drive foreign holdings of Mexican local-currency government debt to an all-time high earlier this year.

“The market reacted to the Fed leaving the door open to a near-term start of tapering,” Eduardo Suarez, a Latin America strategist at Bank of Nova Scotia in Toronto, said in an e-mailed response to questions. The currency’s liquidity leads investors to use it “as a proxy hedge.”

In Mexico, a government report showed retail sales missed analysts’ estimates for the fourth time in five months, tumbling 4 percent in September from a year earlier. The median forecast of economists surveyed by Bloomberg was for a decline of 2.5 percent.

Mexico’s peso will end the year at 12.8 per dollar, compared with a previous forecast of 12.7 per dollar, according to the median forecast in a biweekly survey of analysts by the local unit of Citigroup Inc. published today.

To contact the reporter on this story: Ben Bain in Mexico City at bbain2@bloomberg.net

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