Mexico Peso Rallies on Optimism Demand Will Weather Fed Concern

Mexico’s peso climbed the most in three weeks on speculation demand for the nation’s assets will weather concern that the U.S. Federal Reserve may scale back stimulus measures.

The currency appreciated 1.5 percent to 12.8795 per U.S. dollar at 4 p.m. in Mexico City, the biggest gain on a closing basis since June 13. The peso dropped 1.2 percent on July 5. Three-month historical volatility, a measure of the magnitude of the peso’s fluctuations during the period, rose to 13.11 percent, the highest level since February 2012, according to data compiled by Bloomberg.

“Against the global backdrop, Mexico is seeing bigger inflows that are offsetting the harsh moves in reaction to a stronger dollar,” Luis Estrada, the head of currency and derivatives trading at Banco Ve Por Mas SA in Mexico City, said in an e-mailed response to questions.

The peso advanced as investors are opting for Mexico’s assets over Brazil’s or Turkey’s, according to Estrada. Citigroup Inc. maintained the equivalent of a buy rating for Mexican equities while lowering Brazil to sell.

Francisco Vega, the candidate of the the National Action Party, or PAN, and the Democratic Revolution Party, or PRD, was leading the Baja California governor’s election over Fernando Castro, supported by the Institutional Revolutionary Party, or PRI, and the Green Party, according to preliminary results reflecting more than 97 percent of the votes cast. Castro has said those results are inaccurate.

PRD and PAN agreed in December to create the Pact for Mexico with PRI to push through legislative changes to promote economic growth.

‘No Blood’

“Foreign investors read the paper, saw no blood” in the elections, with the Pact for Mexico “still there,” Estrada said.

The yield on benchmark government peso bonds due in 2024 declined eight basis points, or 0.08 percentage point, to 5.95 percent, according to data compiled by Bloomberg. The yield has increased 1.43 percentage points since the end of April.

Fed Chairman Ben S. Bernanke is due to speak in Boston this week on economic policy after saying on June 19 policy makers may reduce bond purchases this year and end them in mid-2014 if growth meets estimates.

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