Published On: Sat, Jan 7th, 2017

Mexico dumps dollars to counter peso’s record slump

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Mexico’s central bank sold dollars in Mexico and New York on Thursday Jan. 5 to fight off the peso’s nose dive to record lows amid fears U.S. President-elect Donald Trump’s protectionist policies could further hammer Latin America’s second-biggest economy.

The central bank sold at least $1 billion in U.S. currency in morning trade, four traders told Reuters, asking not to be identified because they were not authorized to speak publicly.

The bank kept the amount confidential.

A picture illustration shows Mexican pesos and U.S. dollars. PHOTO: REUTERS/Edgard Garrido

A picture illustration shows Mexican pesos and U.S. dollars. PHOTO: REUTERS/Edgard Garrido

Mexico’s currency commission said in a separate statement that the move was aimed at providing liquidity and combating recent volatility in the peso, adding that it could not rule out further discretionary intervention to support the currency.

The dollar sales mark the bank’s first currency intervention since February 2016, when it sold $2 billion to prop up the sinking peso. The peso depreciated 20 percent last year alone and was among the world’s worst performing currencies.

Banco Base said in a report following the intervention that the decision was aimed at combating “speculative positions” that had built up against the peso.

Mexico’s peso MXN=MXN=D2 strengthened after the intervention was reported, but trade was choppy and it pared gains to trade flat around 21.48 per dollar after Trump threatened Toyota Motor Corp (7203.T) with a “big border tax” if it followed through on plans to build a new factory in Mexico to build cars for the U.S. market.

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