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Experts warn Mexico’s peso defence could be costly

Risks on the horizon prompt concerns around the Bank of Mexico’s approach to forex volatility

The Bank of Mexico
The Bank of Mexico
Daniel Hinge

Mexico’s central bank faces a trade-off. Amid pressure on the peso, it has turned to a mix of interest rate hikes and hedging programmes to defend the currency. But the former could put a brake on economic growth, while the latter could incur large losses.  

On June 14, the peso depreciated to a new low of 20.61 per $1 – a decline of 14.4% since April. The movement itself will not come as a surprise to markets after the Federal Reserve’s president Jerome Powell announced the Federal Open

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