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Mexican peso surges as US signals softer stance

Mexico’s peso surged to its highest level since the day after Donald Trump’s election victory after Wilbur Ross, his new commerce secretary, adopted a more conciliatory approach to relations between the two nations, including offering to work with its neighbour to stabilise its currency.

The peso rose as much as 2.5 per cent after Mr Ross in a CNBC interview recalled how, during the Mexican “Tequila crisis” of 1994, the US Treasury had “put in place lines of credit between the central banks” to help stem currency outflows.

“We need to think of a mechanism to make the dollar-peso exchange rate more stable,” Mr Ross continued, although he added that such matters were outside his remit and a subject for the Treasury.

Mr Ross in the interview also played down fears that the US planned to circumvent or even walk away from the World Trade Organisation. The billionaire investor also insisted a successful revamp of the North American Free Trade Agreement — a key aim of the Trump administration — would support the peso rather than weaken it.

Having been pummelled by Mr Trump’s protectionist rhetoric, attacks on Nafta and promise to build a wall on the US-Mexican border, the peso has mounted a recovery since the president’s January 20 inauguration. Later on Friday the peso was trading at MXN19.63, up 1.9 per cent.

Investor doubts about Mr Trump’s ability to deliver on his policies and a $20bn foreign exchange hedging programme announced by Mexico’s central bank have boosted the currency. The peso is also traded round the clock and widely used to hedge emerging market risk.

At a news conference earlier this week Agustín Carstens, Mexico’s central bank governor, “categorically” denied he could seek a swap line from the Federal Reserve in case of liquidity problems, saying the bank had “never even thought of asking” for such a thing.

On Friday, Carlos Serrano, chief economist at BBVA Bancomer, said there was not a credit crunch or liquidity crisis that warranted such a move.

“What would help the peso is to stop this anti-trade discourse,” he said. “The best thing Ross could do is say they want to renegotiate the treaty [Nafta] and for it to be a win-win for both sides.”

He said it appeared it was dawning on the US that it was losing competitiveness due to the anti-Mexican rhetoric. There has been anecdotal evidence of falling sales at shopping centres on the US side of the border whereas they are usually thronged with Mexican day-trippers.

The first auction of the central bank’s currency hedge programme is set for Monday, which Mr Serrano said was a signal that the bank considered the peso had fallen too far and was prepared to put up some money to bolster it.

Mr Ross’s different tack on Mexico and the WTO contrasted with the more hawkish stance being taken by other people in the administration.

“We are going to need an arbiter of some sort,” Mr Ross said, when asked about his views on the WTO. He added that there “was some fine tuning that will be needed” of the dispute resolution mechanism.

Earlier this week, the FT revealed that the Trump administration had sent a hard-hitting report to Congress that revealed it planned to ignore any rulings by the WTO that it sees as an affront to US sovereignty.

In a note to clients, Neil Shearing, an economist at Capital Economics, noted that Mr Ross was on “the more pragmatic wing of President Trump’s administration”.

He continued: “The overall tone of his comments do not point to the radical shake-up in trade arrangements that some had feared . . . With regards to Mexico specifically, Mr Ross took an especially conciliatory line.”