Plummeting Mexican peso nears 15-per-dollar level

The Mexican peso, one of the world's weakest currencies since the global economic meltdown began in September, is nearing the 15-to-the-dollar mark -- a stunning loss of value in just six months.

The peso has fallen nearly 32% against the buck since August. That’s a boon for U.S. tourists heading south, but it’s devastating for Mexican consumers’ purchasing power: They have to shell out significantly more pesos for the same dollar.

The peso’s slide continued Monday, when one dollar was worth 14.46 pesos in New York trading, up from 14.35 on Friday and the most since the Mexican currency was reconfigured in the early 1990s. Those are rates for large trades between banks, so retail customers will be quoted different numbers. But the trend is the same.

It was just last summer that the peso was on a hot streak, reaching a six-year high of 9.86 to the dollar in August. At the time, global investors were impressed with how well the Mexican economy had been holding up despite the worldwide slowdown.

It didn’t last: Once the credit crunch took hold with a vengeance in September, and the global economy fell off a cliff, fearful investors began to flee most currencies other than the dollar and the Japanese yen.

The peso has been slammed harder than many currencies because of Mexico’s heavy dependence on the U.S. economy, said Meg Browne, a currency analyst at Brown Bros. Harriman in New York. The assumption is, if the U.S. is in for prolonged hard times, Mexico will follow.

Also, one factor that had been helping prop up the peso last year -- relatively high Mexican interest rates -- is fading. The Bank of Mexico last month dropped its benchmark short-term interest rate for the first time in nearly three years, cutting it to 7.75% from 8.25%. (That's still a far cry from U.S. short-term rates of less than 1%.)

Mexican President Felipe Calderon said last weekend that the government might need to take more  steps to stimulate the economy, which he said was likely to shrink this year.

In an interview with Bloomberg TV from the World Economic Forum in Davos, Switzerland, Calderon wasn’t specific about possible stimulus moves. "I prefer to wait to see the final size of the problem we are facing" before making an announcement, he told Bloomberg. But he said the measures wouldn’t include tax cuts.

The peso's plunge should make Mexican exports cheaper for U.S. consumers. But that could fan protectionist sentiment in the U.S., as the deep recession here makes every remaining manufacturing job more important for the U.S. economy.

-- Tom Petruno

Comments

[Edson]

The fall of the peso is parallel related to the recession in the US economy since Mexican peso is closely related to the dollar amount. In order for the govt of Mexico to evade these uncontrollable fluctuations, it needs to either be less dependent to the US economy or to engage in protectionism policies such as the ones proposed by the new head of state in the US, president Barack Obama.