Mexico’s central bank sold dollars in Mexico and New York on Thursday 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.
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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 central bank said it would keep the amount confidential.
It was 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 strengthened after the intervention was reported, but later pared gains to trade around 0.31 percent firmer at 21.38 per dollar, pulling away from a new record low at 21.624 per dollar hit on Wednesday after the U.S. Fed hinted faster rate hikes could be needed under Trump.
However, historically the impact of Mexico’s currency interventions have tended to be short-lived, and the peso has continued to trend lower.
Juan Garcia, director of national operations for the central bank, confirmed the surprise sales and said they would continue over the course of the day, but he declined to specify the amount.
Garcia said Mexico’s currency commission would issue a statement later on Thursday with more information on the intervention.
Prior to the February intervention, the Banco de Mexico had sold dollars in rules-based auctions since a deep slump in the peso in 2014. The February dollar sales were a major policy shift and marked the first time the bank opted for direct dollar sales since the 2009 financial crisis.
On Tuesday, the peso was rocked by Ford Motor Co’s (F.N) decision to cancel a planned $1.6 billion investment in central Mexico.
Also, a major fuel price hike that took effect on Jan. 1 has stirred inflation fears and provoked numerous protests and some looting. President Enrique Pena Nieto on Wednesday defended the hike.
The currency bleed continued on Wednesday, and was compounded after minutes from the U.S. Federal Reserve’s Dec. 13-14 meeting showed policymakers were concerned that quicker economic growth under Trump could require faster interest-rate increases in the United States.
Trump’s election win drove the Mexican currency steadily lower, with the sell-off fueled by his threats to scrap a trade deal between Mexico and the United States, and to levy punitive tariffs on Mexican-made goods.
On the campaign trail, Trump threatened to halt money transfers from Mexican nationals in the United States unless the country agreed to pay for the massive wall he has vowed to build on the U.S. southern border to keep out illegal immigrants.
(Additional reporting by Roberto Aguilar, Paulina Osorio and David Alire Garcia; Writing by Simon Gardner; Editing by Jeffrey Benkoe)