Mexico’s Central Bank Sells Dollars as Implied Volatility Surges

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Mexico’s central bank sold dollars at an extraordinary auction for the third time in four trading sessions, tapping its reserves in a bid to bolster the peso after it tumbled to a record low.

Policy makers sold $200 million Monday at an exchange rate of 17.1518 pesos per dollar, following similar sales on Aug. 21 and Aug. 19. One-month implied volatility on options for the peso, reflecting projections of price fluctuations, rose to 15.725 percent, the highest since September 2013.

Mexico’s currency is caught in a rout for developing nations after China’s yuan devaluation sparked concern of a further global slowdown. The peso slid 1.2 percent Monday to 17.2011, weakening beyond 17 for the first time since its 1993 revaluation.

“This is quite stunning, the volatility that we’ve had,” John Welch, a macro strategist at Canadian Imperial Bank of Commerce, said from Toronto. “The market’s a little bit panicky.”

On July 30, Mexico said 1 percent declines in the peso would result in extraordinary dollar sales of as much as $200 million, down from a previous trigger of 1.5 percent. Separately, the nation’s currency commission also quadrupled daily dollar sales at no minimum price to $200 million.

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