Mexico Peso Leading Losses Shows Limits of Interest-Rate Boostby
Currency posting world’s biggest decline as sentiment sours
Central bank raised borrowing costs last week to support peso
The Mexican peso posted the world’s biggest decline as investors grew increasingly pessimistic about the outlook for global growth following the U.K.’s decision to leave the European Union.
The peso tumbled 1.9 percent to 18.7667 per dollar at 1:53 p.m. in New York, leading losses among about 150 currencies tracked by Bloomberg and extending its decline since the referendum on EU membership to 2.9 percent.
Mexico’s currency is the most liquid in developing nations and is often used to hedge risk in other markets, which means that on days when global sentiment sours it’s often among the most battered assets. In a bid to make the peso less attractive for traders to use as a proxy for general pessimism, Mexico’s central bank raised the benchmark interest rate by a greater-than-forecast half percentage point on Thursday in the wake of the Brexit vote.
“The Mexican peso is still taking it on the chin," said Win Thin, Brown Brothers Harriman’s head of emerging-market currency strategy in New York.
The peso declined Tuesday after comments from the Bank of England reignited worries that European growth will be weak. Commodities and emerging-market assets fell after BoE Governor Mark Carney cited “the prospect of a material slowing of the economy.”