Mexico's Central Bank Steps In as Peso Tumbles on Fed Rate Betsby
Banxico sells $400 million to contain decline in peso
Currency retreated to the lowest level since Sept. 29
The Mexican central bank sold $400 million to contain a drop in the peso, its first currency intervention since the institution changed its support mechanisms last month.
The peso fell 1.6 percent to 16.9150 per dollar at 1:23 p.m. in Mexico City Monday, the lowest since Sept. 29. A Bloomberg gauge of 20 developing-nation currencies tumbled to a record low on speculation the Federal Reserve will raise interest rates on Dec. 16, a move that could reduce the appeal of riskier assets. A selloff in oil, which accounts for a third of the Mexican government’s budget, also contributed to the peso’s decline.
“The impact of a drop in the price of oil was magnified by how close we are to seeing the Fed raise interest rates," said Roberto Galvan, a currency trader at Intercam Casa de Bolsa in Mexico City.
Banxico sold $51 million in its first auction of the day and $149 million in its second one. Later, the institution sold $200 million in an auction triggered by a drop greater than 1.5 percent in the peso versus the dollar.
Mexico’s currency commission scrapped its daily dollar auctions with no minimum price last month, and said it would step up the maximum amount it can sell amid sharp declines in the peso. Mexico’s international reserves fell to a two-year low of $172 billion last week.