Mexico’s Peso Tumbles for Third Day on Fed Stimulus Speculation

Mexico’s peso fell for a third day as mounting concern that Federal Reserve policy makers will signal this week that they’re preparing to scale back monetary stimulus damps demand for emerging-market assets.

The peso fell 0.5 percent to 12.8955 per U.S. dollar at 4 p.m. in Mexico City. The currency’s one-month historical volatility, a measure of the magnitude of fluctuations during the period, surged to the highest in emerging markets after South Africa’s rand. Yields on peso bonds due in 2024 rose 13 basis points, or 0.13 percentage point, to 5.44 percent, according to data compiled by Bloomberg.

Mexico’s currency has tumbled 5.9 percent since the beginning of May as U.S. Treasury yields surged on speculation the Fed may pare the stimulus program. The Fed starts a two-day policy meeting today after Chairman Ben S. Bernanke said last month that asset purchases could be scaled back if the employment outlook showed sustainable improvement.

“The market is still thinking that the Fed will say something about the tapering,” Pedro Tuesta, senior economist for Latin America at Washington-based 4Cast, said in a telephone interview. “It’s basically everybody trying to cover their short dollar positions.”

The Fed has been buying assets at an $85 billion monthly pace, including $40 billion in mortgage-backed securities, to bolster growth and reduce the jobless rate.

Housing starts in the U.S. climbed 6.8 percent, less than analysts forecast, to a 914,000 annualized rate after a revised 856,000 pace in April, the Commerce Department said today in Washington. Applications to build one-family homes increased 1.3 percent to a 622,000 pace, the fastest since May 2008.

Mexico sends about 80 percent of its exports to the U.S.

The Mexican government sold today at its weekly debt auction 6 billion pesos in one-month bills known as Cetes, 8 billion in notes due in three months and 9 billion pesos in debt maturing in six months. Petroleos Mexicanos, the state-owned oil company, said it sold 2.5 billion pesos in floating rate bonds due in 2017.

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