Mexico’s Peso Jumps as Drop in U.S. Home Sales Eases Fed Concern

Mexico’s peso rallied as a bigger than forecast U.S. drop in new home sales reduced speculation that a tapering of Federal Reserve stimulus was imminent.

The peso strengthened 1 percent to 12.9573 per U.S. dollar at 4 p.m. in Mexico City, the biggest gain among major Latin America currencies after Brazil’s real. Mexico’s currency pared its weekly drop to 0.4 percent after tumbling 2.3 percent in the prior week, the most since June.

“It’s a response to the overshoot that we saw,” Roberto Galvan, a trader at Intercam Casa de Bolsa SA, said in a phone interview from Mexico City. “It was an exaggerated move.”

Sales of newly built homes in the U.S. decreased 13.4 percent in July, the Commerce Department reported today in Washington. The median forecast of economists surveyed by Bloomberg was for a 2 percent drop. Last month’s decline was the biggest since May 2010.

Yields on Mexico’s benchmark peso bonds due in 2024 fell 12 basis points, or 0.12 percentage point, to 6.19 percent today, according to data compiled by Bloomberg. The price rose 1.12 centavo to 130.91 centavos per peso.

Peso volatility isn’t a major threat to inflation, and the peso can move without affecting inflation “much,” Mexican central bank Governor Agustin Carstens said today in an interview with Bloomberg Radio at the Kansas City Federal Reserve Bank’s symposium in Jackson Hole, Wyoming.

Mexico next week plans to sell 25 billion pesos ($1.9 billion) in fixed-rate bonds maturing in 2018 next week. The Finance Ministry plans to use a syndicate of banks to sell the debt on Aug. 28.

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