Mexico Peso Rallies to Highest This Year on Fed Stimulus Outlook

Mexico’s peso rose to its highest level this year after U.S. Federal Reserve Chair Janet Yellen said a “high degree” of accommodation remains warranted, spurring demand for higher-yielding assets in emerging markets.

The currency advanced 0.5 percent to 12.9646 per U.S. dollar in Mexico City, the highest level since December 18. The increase was the second-biggest among 16 major currencies tracked by Bloomberg.

“The market is perceiving her as being dovish,” Alejandro Silva, a founding partner at Chicago-based Silva Capital Management LLC, who helps oversee $800 million of emerging-market assets, said in a phone interview. “It looks more positive for fixed-income and emerging markets.”

The peso gained as Yellen said today in testimony prepared for delivery to the Joint Economic Committee of Congress that the Fed must continue to spur economic growth as indicators for inflation and employment remain far from the central bank’s goals. In Mexico, analysts surveyed by the central bank lowered their average forecast for 2014 economic growth to 3.01 percent to from 3.09 percent.

Yields on peso bonds maturing in 2024 dropped four basis points, or 0.04 percentage point, to 6.06 percent. The price climbed 0.36 centavo to 130.70 centavos per peso.

Fed officials trimmed monetary stimulus last week for the fourth consecutive meeting, saying the world’s largest economy has strengthened after harsh winter weather slowed growth to a 0.1 percent annual pace in the first quarter. The U.S. is Mexico’s biggest trading partner.

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