Mexican peso decline once again due to worries over inflation

Mexican Peso

On Tuesday, the Central Bank of Mexico sold an extra $500 million foreign exchange hedges with the aim to aid the peso amidst the uncertain future of the economy.

 

The peso fell to record lows in almost 10 months versus the dollar because of uneasiness over inflation and the possible effect of the latest U.S. corporate tax cuts on Mexico.

 

The peso started by increasing more than 0.7 percent versus the greenback on Tuesday, following the announcement of additional auctions by Mexico’s currency commission, which came from a $20 billion project started in February to decrease exchange rate volatility.

However, the currency took a sudden turn for the worse as the Mexican peso fell by 1.03 percent to 18.90 per dollar by 2:52 p.m. EST. Reaching its lowest since the third of March, continuing the losses it underwent the last week.

Adding to Mexico’s concerns is the tax overhaul law that was signed by U.S. president Donald Trump on Friday, reducing corporate tax from 35 percent to 21 percent. Worries grew over Mexico’s potential loss in investments.

The finance ministry of Mexico are currently assessing whether to make fiscal changes to counter the circumstances.

As the NAFTA (North American Free Trade Agreement) supports most of Mexico’s foreign trade, President Donald Trump’s threats to disband the NAFTA also affected the Mexican peso.

The upcoming Mexican presidential elections in the year 2018 also added to the already existing anxiety as analysts stated that the peso could experience continued periods of volatility in the weeks to come.

According to the central bank, it has received bids hitting $375 million for the 57 day hedges that were put up for auction which were valued at $250 million while receiving bids reaching $255 million for the 30 day hedges.

In an unrelated auction to renew the 60 day hedges, Mexico received bid reaching $600 million for an additional $300 million on offer.

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