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The peso is sitting steady at a three-month high against the dollar after Mexico’s central bank unveiled a $20bn hedging programme designed to curb the currency’s volatility without turning to international reserves.

The peso climbed 1.8 per cent, to 19.92 against the dollar, in reaction to the surprise announcement on Tuesday, writes Stephen Woodman. After paring back slightly to about 20 per dollar it has remained basically unchanged at that level during Wednesday trading.

The central bank will offer the foreign exchange hedges, which will be payable at maturity, to the private sector. The first auction will take place on March 6 for up to $1bn.

“In the past few months, the exchange rate between the peso and US dollar has shown a large amount of volatility, one which is not consistent with the economic fundamentals of our country,” the central bank announced.

The hedging programme is the latest currency intervention measure the government has applied to combat the depreciation of the peso, which hit historic lows following Trump’s election as US president.

Mr Trump’s plans to renegotiate Nafta and his talk of tariffs on imports have raised plenty of question marks for Latin America’s second-largest economy. Last month, Mexico’s central bank spent $1.8bn of reserves, which are now down to $175bn.

The hedges announced Tuesday are settled in pesos and avoid the need to drain reserves. The programme echoes similar measures in other emerging markets, such as Brazil, which uses derivatives to prop up the real. However, while Brazil’s scheme had no upper limit, Mexico has set the cap at $20bn.

Copyright The Financial Times Limited 2017. All rights reserved.
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