| | |  Business News | October 2008 
Mexico's Peso Rises on U.S. Plan to Inject Capital Into Banks
 Michael J. Moore - Bloomberg
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Mexico's peso rose for the third day, the longest winning streak in three weeks, as the U.S. government announced a plan to inject capital into banks, sparking demand for higher-yielding, emerging-market assets.
The peso climbed 2.5 percent to 11.9503 per dollar at 8:35 a.m. New York time. The currency has risen 9.6 percent in the past two days, the biggest two-day rally in 13 years, after a 14 percent decline last week. Banco de Mexico sold $8.9 billion last week in an effort to shore up the peso after it slid to a record low of 14.2927.
To contact the reporter on this story: Michael J. Moore in New York at mmoore55(at)bloomberg.net
Mexico Tries to Rescue the Peso
Sean Gaffney - The Monitor
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The peso fell last week to a low of 14.2 per dollar as the mortgage-fueled financial crisis spread overseas. Risk-averse investors poured money into the U.S. dollar and dumped equity in emerging markets such as Mexico.
Mexico’s central banks responded by selling more than $8.9 billion, or 10 percent, of its foreign reserves to stabilize the currency. The move calmed investors and spurred the largest one-day gain in the currency Monday since March 10, 1995, when Mexico increased taxes and announced spending cuts in the aftermath of the currency devaluation.
Economists worry, however, that Mexico could go too far if the economy doesn’t stabilize, emptying too much of their foreign reserves and further destabilize the economy and drive down the value of the peso, said Albert Davila, chair of the economics department at the University of Texas Pan-American.
“It can only do it for so long,” he said. “If you run out of reserves, basically it’s a free fall.”
Dwindling foreign investments and remittances and falling oil prices have also saddled the Mexican economy and further made citizens reluctant to spend money on this side of the border. |
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