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Mexico's peso closed at a two-year high on Thursday after poor US job market data reinforced views the Federal Reserve will further cut interest rates. The peso firmed 0.16 percent to 10.5595 per dollar at the central bank close, while the benchmark IPC stock index rose 0.70 percent at 31,689.61 points.
The peso is at its strongest level since March 2006 as investors favour the relatively high yields on local debt compared with US Treasuries. US government data showed the number of US workers applying for unemployment benefits last week soared to the highest level since September 2005.
"If you have weak data like this in the United States, it motivates expectations of a wider rate spread," said David Franco, a fixed-income analyst at BBVA Bancomer in Mexico City. That makes assets denominated in Mexican pesos more attractive to yield-hungry investors. The spread between Mexico's key rate and the Fed's target rate stands at 525 basis points, its widest since mid-2005. In debt trading, the price of the benchmark 10-year government peso bond rose 0.207 points to bid at 101.844, pushing its yield down 3 basis points to 7.48 percent.

Copyright Reuters, 2008

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