Mexican Peso’s Plunge Accelerates, and Central Bank Intervenes

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The Mexican peso’s decline gathered speed, falling by the most in eight weeks to a new record and prompting the central bank to sell $200 million under a currency-intervention program.

The peso slid 1.1 percent to 16.4708 per U.S. dollar as of 1:13 p.m. in Mexico City, sinking the most since June 5. Mexico’s currency has lost 10 percent this year.

The world’s eighth-most-traded currency was swept up in an emerging-market selloff Thursday as U.S. economic data supported the case for higher interest rates from the Federal Reserve. The plunge has continued even as the central bank tried to slow its descent with $52 million of daily dollar sales in addition to the extraordinary auctions, which happen when the peso is unusually volatile.

“I don’t know if this is going to stem the tide,” Kathryn Rooney, a macroeconomic strategist at Bulltick Capital Markets, said in an interview in Mexico City. “The selloff has been really steep.”

The central bank sells $200 million whenever the peso sinks more than 1.5 percent during a trading session from an official fixing rate set the prior day. The program was rolled out in December as the currency swooned along with oil prices, and has been used three times.

In Thursday’s auction, the dollars were auctioned at a rate of 16.4622 pesos each.

In the market for forwards, a type of contract that allows users to lock in future currency prices, traders are pricing in even lower exchange rates in the months to come: 16.65 per dollar at the end of this year and 17.16 at the end of 2016.

Analyst Forecasts

Analysts are predicting the peso will recover. The median of 28 estimates compiled by Bloomberg is for Mexico’s currency to strengthen to 15.7 per dollar by the end of September.

At the start of 2015, the peso was forecast to strengthen 9.3 percent this year versus the dollar, the most in the world. Instead, the currency has slid as traders used it as a hedge for everything from Brazilian corporate bonds to oil prices.

On the Chicago Mercantile Exchange, futures trades designed to profit from the currency’s decline have climbed to a record.

Global factors have added to pressure on the peso at a time when investors already are disillusioned with Mexico’s prospects for an oil-fueled surge in foreign investment.

Morgan Stanley said in a research note Monday that the likelihood is growing that Mexico’s central bank will increase or add to its intervention programs to slow the peso’s decline.

The Bank of Mexico is scheduled to announce its decision on benchmark rates at 1 p.m. Mexico time Thursday. No change is expected, based on a Bloomberg survey of economists.

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