Mexico Peso Falls to Record as U.S. Jobs Sink Emerging Markets

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Mexico’s peso dropped to its weakest level since its 1993 revaluation after a jump in U.S. payrolls bolstered bets the Federal Reserve will raise interest rates and sink demand for emerging-market assets.

Speculation that the Fed will raise borrowing costs for the first time since 2006 is reducing Mexico’s attractiveness to foreign investors. The local currency is also suffering from reduced prospects for economic growth this year after public-spending reductions and a drop in oil output at state-owned Petroleos Mexicanos.

The peso depreciated 1 percent to 15.6881 per U.S. dollar at 11:52 a.m. in Mexico City after earlier falling to 15.7722, its weakest level since 1993, when the government redenominated the currency to create what was called the nuevo peso.

“Despite what most people would agree are pretty good fundamentals in Mexico, the peso is still used as a proxy for emerging markets,” Win Thin, the global head of developing-nation strategy at Brown Brothers Harriman & Co., said from New York. “Leading up to and after the Fed hike, it’s going to be pretty messy for emerging-market currencies.”

The currency’s tumble in March prompted officials from the Finance Ministry and central bank to announce $52 million in daily dollar sales, later extended through September, to help stabilize the peso.

After a surprise half-point reduction a year ago, policy makers have kept borrowing costs unchanged at a record low to boost a $1.26 trillion economy that has missed forecasts in eight of the past 12 quarters.

Overnight Rate

Mexico’s central bank held the overnight rate Thursday at 3 percent after reducing in May its economic growth forecast for this year to 2-3 percent from the previous projection of 2.5-3.5 percent.

In the U.S., employers added 280,000 jobs in May following a revised 221,000 increase in the prior month, the Labor Department reported Friday. That exceeded the median forecast of economists surveyed by Bloomberg, which called for an increase of 226,000.

“Investor confidence about a December rate hike by the Fed has been shaken by the strong payrolls number,” Juan Carlos Alderete, a strategist at Grupo Financiero Banorte SAB, said by e-mail. “Conviction that the first move could come as soon as September should increase as recent data suggest the U.S. is back on track.”

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