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Peso Rises and Mexico May Increase Dollar Options Sold

13 September, 2012

The Mexican Peso closed stronger against the U.S. dollar on Friday. It closed at MXN12.0350 after closing the day before at MXN12.0815. The peso rose just after news that President Honsi Mubarak of Egypt had stepped down from office,reported the Wall Street Journal. 

Overall,the peso has had a relatively smooth ride over the last several months. The U.S. is increasing their demand for Mexican manufactured goods which strengthens the economy overall. There is also a lot of domestic construction taking place and an increasing number of foreign investments that are contributing to the Mexican economy.

In addition to the news about the peso,Mexican Finance Minister Ernesto Cordero indicated that policy makers are considering an increase on the amount of dollar options auctioned off each month,reported Bloomberg.

Each month,the Mexican government has offered $600 million in dollar options for auction. In the past several months these options have been sold out in just a matter of a few days within the start of the month.

Cordero announced that the move would help to protect the peso if there was a sudden outflow of capital at some point. Unlike other emerging market countries,Mexico won’t intervene in the peso market. Neither will it adopt currency controls to try to limit the growth of the peso.

This change would increase the ability for Mexico to gather foreign reserves,which will provide a buffer in case there is a drop in the peso at some point. 

“It’s important to have more reserves in case of any reversal in capital inflows,” stated Gabriel Casillas,the chief economist at JPMorgan Chase & Company in Mexico City,“If you have more reserves,the depreciation would be slower.”

That being said,Cordero also noted that he doesn’t expect there to be a sudden change in capital inflows to Mexico,particularly with the recent recommendation from Carlos Slim and other positive economic signs.

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