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Interest Rate Hike Doesn’t Help Mexican Peso

September 29, 2016 at 23:07 by Vladimir Vyun

100 and 50 Brazilian real notesThe central bank of Mexico raised interest rates on Thursday, but the market demonstrated limited reaction to the news. The Mexican peso fell during Friday’s Asian trading session, continued to be driven by concerns about the US presidential elections.

The Banco de Mexico increased its main interest rate by 50 basis points to 4.75% on Thursday. Now it stands at the highest level since 2009. A rate hike was expected by analysts, surveyed by Bloomberg, though they were unsure about the exact scope of the increase. The bank has already hiked rates twice this year.

While it is usually beneficial for a currency when its respective central bank lifts borrowing costs, the peso showed muted reaction to the rate hike. The reason for this is uncertainty surrounding the outcome of the US elections. The United States are Mexico’s biggest trading partner, and investors are worried what a change of US leadership (especially if Donald Trump wins) can mean for the countries’ relations.

USD/MXN rose 0.09% to 19.5395 as of 22:59 GMT today.

If you have any questions, comments or opinions regarding the Brazilian Real, feel free to post them using the commentary form below.

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