Mexican Peso Declines to Eight-Week Low as Europe Saps Demand

Mexico’s peso fell to an eight-week low on investor concern that the European debt crisis will worsen, adding to speculation that the Latin American country will cut rates for the first time since 2009.

The peso depreciated 0.3 percent to 12.8435 per U.S. dollar at 4 p.m. in Mexico City, the lowest closing level since Jan. 1.

Italy headed toward a political stalemate that threatened to derail austerity measures, reigniting speculation the European country will struggle to repay debt.

“If the winning government doesn’t help with what all the governments are doing to get out of the crisis in Europe, it automatically leads to political and economic risk,” Eduardo Rodriguez, a currency trader at Casa de Bolsa Finamex SAB, said in a phone interview. “The investors leave countries with higher interest rates.”

The peso briefly erased its losses after the S&P/Case-Shiller index of property values showed that home prices in 20 U.S. cities rose in the 12 months to December by the most in more than six years, boosting the economic outlook for the Latin American country’s biggest trading partner. Mexico sends about 80 percent of its exports to the U.S.

In the four-way race in Italy, Democratic Party leader Pier Luigi Bersani won the lower house by less than a half-percentage point. Former Premier Silvio Berlusconi, who pledged to reverse austerity measures, won a blocking minority in the Senate.

Yields on local-currency bonds due in 2024 rose seven basis points, or 0.07 percentage point, to 5.13 percent, the highest closing level since Feb. 8. The price on the debt fell 0.85 centavo today to 143.04 centavos.

In Mexico, interbank futures contracts show that traders are betting that the central bank will probably announce a cut in the 4.5 percent benchmark rate after its next meeting on March 8. Banco de Mexico reiterated on Feb. 13 that it may reduce the target rate after inflation in January slowed to 3.25 percent, the slowest since October 2011.

Latin America’s second-biggest economy posted its biggest trade deficit since 2008 last month on falling exports, according to data in a preliminary report from the the national statistics agency today, fueling speculation that policy makers will cut the benchmark interest rate.

Before it's here, it's on the Bloomberg Terminal.