Mexico’s Currency Leads Gains in Latin America on U.S. Fed Plan

By Valerie Rota

Nov. 25 (Bloomberg) -- Mexico’s peso rose, pacing gains among Latin American currencies, on speculation a plan by the U.S. Federal Reserve to buoy consumer lending will shore up demand for Mexican exports.

The Mexican currency advanced for a third day as investors stepped up bets the peso is poised to rally after a three-month slump that drove it to a record low in October. Carlos Slim, Mexico’s wealthiest person, said investors who purchase dollars with pesos “at these prices will have to sell them cheaper” later, El Economista newspaper reported today.

“As a sense of calm returns, the peso should strengthen against the dollar,” said Tonatiuh Rodriguez, who oversees 50 billion pesos ($3.8 billion) in assets at Mexico City-based pension fund Afore XXI.

The peso gained 1.3 percent to 13.2328 per U.S. dollar at 5 p.m. New York time, from 13.4013 yesterday. It is up 5 percent over the past three days, paring its rout over the past three months to 23 percent.

The Fed said today it’s committing up to $800 billion to unfreeze credit for homebuyers, consumers and small businesses. It will purchase as much as $600 billion in debt issued or backed by government-chartered housing-finance companies and set up a $200 billion program to support consumer and small-business loans. The U.S. buys about 80 percent of Mexican exports.

“Measures are being taken so that the duration of the crisis is as short as possible,” said Omar Martin del Campo, a currency trader at Banco Ve Por Mas SA in Mexico City.

Current Account Gap

The global financial crisis that began last year with the rout in the subprime-mortgage market has fueled job losses and crimped consumer demand in the U.S. A report today showed Mexico’s current account deficit swelled in the third quarter to its widest since 2001, draining dollars from the country and contributing to the peso’s slide in recent months.

The current account, the broadest measure of trade in goods and services, widened to $5 billion from $2.7 billion in the second quarter, a central bank report showed.

Losses in the peso mounted in October as concerns grew a global central bank effort to cut lending rates wouldn’t be enough to unfreeze international credit markets.

Today’s announcement by the Fed, along with the U.S. government guarantee of troubled assets at Citigroup Inc. and President-elect Barack Obama’s pick of New York Fed President Timothy Geithner as Treasury secretary yesterday, buoyed confidence in the financial system and demand for higher- yielding assets.

The drop in the peso “has been too strong and too fast,” said Pablo Septien, who oversees about $400 million in assets in Mexico City at Finaccess SA. “We saw an aberration.”

Inflation Surge

Yields on Mexico’s 10 percent bond due in December 2024 fell 16 basis points, or 0.16 percentage point, to 9.35 percent. The yield has declined 52 basis points since Nov. 20. The bond’s price rose 1.32 centavo to 105.39 centavos per peso, according to Banco Santander SA.

Slim, speaking in Buenos Aires, where he joined a delegation of business leaders accompanying President Felipe Calderon on a state visit to Argentina, also said he expects inflation to recede in Mexico, according to Mexico City-based Economista.

Mexico’s annual inflation surged to a seven-year high of 6.2 percent in the 12 months through mid-November, the central bank reported yesterday.

“A pickup in inflation is always bad news, but the current levels of yields seems to have already discounted higher inflation rates,” Rodriguez at Afore XXI said. Long-term bond “yields at these levels have room to decline.”

To contact the reporter on this story: Valerie Rota in Mexico City at vrota1@bloomberg.net.