Mexico Peso Rises From Week Low After Pledge From Fed’s Yellen

Mexico’s peso rose from a one-week low as Federal Reserve Chairman Janet Yellen signaled a gradual reduction in a U.S. stimulus program that has supported demand for emerging-market assets.

The currency appreciated 0.3 percent to 13.2885 per U.S. dollar at 4 p.m. in Mexico City after closing yesterday at the weakest level since Feb. 3, according to data compiled by Bloomberg. Yields on peso bonds due in 2024 dropped one basis point, or 0.01 percentage point, to 6.4 percent.

Foreign investors increased holdings of higher-yielding Mexican fixed-rate bonds last month to 57 percent of the total outstanding, according to data from Banco de Mexico. In testimony to the House Financial Service Committee today, Yellen pledged to maintain policies by scaling back stimulus in “measured steps.” The Fed has held its target rate near zero since December 2008 and engaged in three rounds of bond buying, boosting demand for higher yields.

“There wasn’t a change in the viewpoint,” Eduardo Rodriguez, a trader at Casa de Bolsa Finamex SAB, said in a telephone interview from Guadalajara, Mexico. “That’s what the market hoped for, and the market is taking it positively.”

The Fed said in December that it would start reducing the monthly pace of asset purchases, citing progress toward its goal of full employment. It announced a $10 billion reduction that month, followed by a cut of the same size in January, to $65 billion.

‘Quite Liquid’

Mexico’s peso fell earlier today after a report showed industrial production unexpectedly contracted in December, adding to concern that the recovery of Latin America’s second-biggest economy will stall.

Finance Minister Luis Videgaray said today in an interview with Bloomberg Television that there’s no need for the government to intervene to support the peso because the market is “quite liquid.” Investors have come to expect that Mexico will refrain from intervention, and the government has no plans to take action to support the currency, Videgaray said.

The peso fell to an 18-month low against the dollar on Feb. 3. The currency has lost 4.6 percent in the past six months.

The government today sold 7 billion pesos in 28-day Cetes, 10.5 billion pesos in 91-day bills and 11.5 billion pesos in notes maturing in 175 days, according to the central bank. It also sold 950 million udis in inflation-linked debt maturing in June 2016 and 11 billion pesos in bonds due in December 2017.

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