CaboRon - 8-14-2009 at 06:14 AM
Mexico's Peso Rises to Nine-Month High on Easing Recession
By Catarina Saraiva
Aug. 13 (Bloomberg) -- Mexico's peso rose to the highest level in nine months after the Federal Reserve yesterday signaled the recession is easing.
The peso gained for a second day, rising 0.8 percent to 12.8527 per U.S. dollar at 11:09 a.m. New York time, from 12.9595 yesterday. Earlier it
touched 12.7894, the strongest since Nov. 11.
The Fed's statement yesterday is the "main trigger of the peso's rise today," said Gaelle Blanchard, an emerging-markets analyst at Societe Generale
in London. "The Mexican economy is still very dependent on what's going on in the U.S., so the currency is also very sensitive to economic news from
the U.S."
Mexico sends 80 percent of its exports to the U.S.
The Mexican peso has been underperforming against other emerging-market currencies in the past three months as U.S. economic news was "unclear," said
Jaime Valdivia, who manages $650 million of assets for Emerging Sovereign Group in New York.
The peso has risen 3.8 percent since May 13, the second- worst performance against the dollar among the six most-traded Latin American currencies
after the Argentine peso.
"There were fears about a potential credit downgrade and a deteriorating fiscal situation in the country," Valdivia said.
Demand for pesos increased after Moody's Investors Service affirmed on Aug. 5 the country's credit rating and stable outlook.
The government may propose higher taxes as part of its 2010 budget bill in September as revenue this year will fall short of the budgeted amount by
480 billion pesos ($37.3 billion), the largest gap in the nation's history, Finance Minister Agustin Carstens said last month.
"If Mexico is able to pass a substantial tax reform, including the elimination of exemptions of the value added tax, then the Mexican peso will have a
lot more upside," Valdivia said.
Yields on Mexico's 10 percent bond due December 2024 rose five basis points, or 0.05 percentage point, to 8.51 percent. The bond's price fell 0.47
centavo to 112.68 centavos per peso, according to Banco Santander SA.
To contact the reporter on this story: Catarina Saraiva in New York at Asaraiva5@bloomberg.net.
Last Updated: August 13, 2009 11:14 EDT