Mexican Peso Posts Worst Week Since September on Fed Outlook

Mexico’s currency posted its biggest weekly decline in more than three months as an improving U.S. economic outlook fueled speculation that the Federal Reserve will move faster to pare back stimulus.

The peso dropped 2.1 percent to 13.2459 per U.S. dollar since Jan. 10 this week, the biggest decline since the week ended Sept. 27. The currency advanced 0.2 percent today.

“It continues to be about the tapering,” Salvador Orozco, deputy director for money markets and exchange at Grupo Financiero Santander Mexico SAB, said by phone from Mexico City. “It’s the worry about a reduction in flows.”

Yields on peso bonds due in 2024 fell four basis points today, or 0.04 percentage point, to 6.4 percent, according to data compiled by Bloomberg. Yields fell one basis point this week.

While stronger growth in the U.S. historically bolsters the peso as Mexico’s export outlook improves, speculation that the Fed will keep reducing its program of asset purchases has caused the currency to fall 1.6 percent in January. Fed policy makers said Dec. 18 they will cut monthly bond buying to $75 billion from $85 billion, citing an improving labor market.

The U.S. central bank will pare monthly purchases in $10 billion increments over the next six meetings before announcing an end to the program no later than December, according to the median forecasts of economists in a Bloomberg survey this month.

Foreigners increased their holdings of Mexican government debt to 1.82 trillion pesos ($137.4 billion) on Jan. 7, from 1.78 trillion pesos a month earlier, according to data from the central bank. Global investors hold 36.6 percent of the total outstanding, compared with the all-time high of 37.6 percent.

Mexico’s national statistics agency said today that the country’s unemployment rate in December fell to 4.25 percent, from 4.47 percent in the previous month. The median estimate in a Bloomberg survey was for 4.26 percent.

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