Mexican Peso Declines Most Among Major Currencies on Fed Concern

Mexico’s peso dropped the most among the world’s major currencies as signs of an improving U.S. economy added to concern the Federal Reserve will begin to curtail its monetary stimulus as soon as this week.

The peso depreciated 0.4 percent to 12.9312 per U.S. dollar at 4 p.m. in Mexico City, the biggest drop among 16 major currencies tracked by Bloomberg. Yields on fixed-rate peso bonds maturing in 2042 increased four basis points, or 0.04 percent, to 7.67 percent, according to data compiled by Bloomberg.

Mexico’s peso erased last week’s 0.4 percent gain triggered by congressional passage of a bill to end the country’s state oil monopoly. The Fed may begin reducing its $85 billion of monthly bond purchases at its Dec. 17-18 meeting, according to 34 percent of economists in a Dec. 6 Bloomberg survey, up from 17 percent in a Nov. 8 poll.

“Rates are wider from this morning and the peso is weakening as if investors were selling bonds and the peso, getting out of risk ahead of the Fed,” Alejandro Urbina, who helps manage $800 million at Silva Capital Management LLC, said in an e-mailed response to questions. “Reforms are cause for optimism in Mexico. Tapering is cause for concern in fixed-income markets globally.”

U.S. industrial production expanded 1.1 percent in November after a revised 0.1 percent gain in the prior month that was previously reported as a decline, a report from the Fed showed today. The median forecast of economists surveyed by Bloomberg was for a 0.6 percent increase. The index of industrial production rose to 101.3, exceeding for the first time its pre-recession peak in December 2007.

State Approval

In Mexico, a majority of 31 states approved the legislation federal lawmakers passed last week, allowing measures permitting companies including Exxon Mobil Corp. to develop the largest unexplored crude-oil area outside the Arctic region. President Enrique Pena Nieto’s government forecasts an energy law overhaul will attract investment that will help boost Mexico’s annual gross domestic product growth by 1 percentage point by 2018.

The approval of the constitutional amendments by federal lawmakers to end government-controlled Petroleos Mexicanos’s 75-year oil monopoly is credit-positive for the nation’s sovereign rating, Moody’s Investors Service senior credit officer Mauro Leos said in a Dec. 13 interview.

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