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Mexico Peso Volatility Abates on Speculation Fed to Taper Slowly

Mexico peso volatility held within 0.02 percentage point of an eight-month low amid speculation that the Federal Reserve will move slowly to cut stimulus that has boosted demand for emerging-market assets.

One-month historical volatility, a measure of the magnitude of the peso’s fluctuations during the period, was 9.03 percent at 4 p.m. in Mexico City, after falling yesterday to 9.01 percent, the lowest since April. The peso was little changed at 13.09 per dollar, according to data compiled by Bloomberg.

Peso volatility had surged to an 18-month high in July as concern mounted that the Fed might reduce the stimulus quickly. The U.S. central bank, which said in December it would trim monthly asset purchases by $10 billion to $75 billion, probably will pare the program by $10 billion at each of the six meetings scheduled through September, based on the median forecast of 42 economists surveyed by Bloomberg on Jan. 10.

The perspective among traders is “that at the end of the day the Fed’s reduction in monetary stimulus will be gradual,” Rafael Camarena, an economist at Grupo Financiero Santander Mexico SAB, said in a telephone interview from Mexico City.

Federal Reserve Bank of Philadelphia President Charles Plosser, who opposed the Fed’s bond purchase program last year, said today that he’s “reasonably pleased” with the Fed’s strategy to begin unwinding asset purchases. The Federal Open Market Committee is scheduled to meet Jan. 28-29.

In Mexico, where the economy expanded an estimated 1.3 percent last year, growth is forecast to speed up to 3.47 percent in 2014, according to the median forecast of analysts surveyed by Bloomberg.

Mexico sold 7 billion pesos ($535 million) of 28-day cetes today to yield an all-time low of 3.05 percent, according to the central bank.

“Recovering growth should help these auctions, and it also tends to help with the peso,” John Welch, a strategist at Canadian Imperial Bank of Commerce in Toronto, said in a telephone interview.

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