Sell-off drives Mexican peso above 13-per-dollar mark

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From Times staff writer Marla Dickerson:

So much for the super peso.

Traders are falling over themselves this week to unload Mexico’s currency, on fears that a U.S. economic downturn would savage Mexico’s economy.

The peso plunged to nearly 13.2 per dollar on Thursday from 12.3 on Wednesday and 10.9 at the end of September.

The latest dive has occurred despite heavy intervention by Mexico’s central bank to stem the rout. It’s the peso’s biggest drop in value since the country’s 1994 devaluation.

‘This is panic behavior,’ said Alberto Bernal, head of emerging-markets research at Bulltick Capital Markets in Miami. ‘It has nothing to do with Mexico and everything to do with the U.S.’

Bernal said investors and currency traders naturally fear that the turmoil roiling financial markets in the U.S., Mexico’s largest trading partner, will have painful consequences for Mexico: falling exports, falling oil prices and falling remittances.

It all adds up to fewer dollars flowing south of the border, leading to an abrupt re-pricing of the peso.

The peso is just one of many emerging-market currencies that have slumped against the dollar in recent weeks, as investors have pulled funds from markets deemed high risks.

But the turnabout has been particularly hard on the peso, which in early August was below 10 per dollar -- the strongest the Mexican currency had been since 2002.

A weak peso helps Mexican exporters, but it also could exacerbate inflation that already is wreaking havoc on household budgets. The cost of imports rises as the peso slides.

After assuring Mexicans for months that the country’s economy was on solid footing, Mexican President Felipe Calderon has asked Congress to approve a stimulus package equal to 1% of the country’s gross domestic product to help keep the economy from landing in the ditch.

Calderon’s advisors, ‘like everyone else, underestimated the degree, the virulence of the problem’ created by the U.S. financial meltdown, Bernal said. ‘Usually Latin America is the creator of the crisis. This time, it’s the other way around.’