December 26, 2017 / 2:22 PM / a year ago

Mexico steps up currency hedge auctions to ease pressure on peso

A board displaying the exchange rate for Mexican peso and U.S. dollar is pictured at a CI Bank branch in Mexico City, Mexico December 26, 2017. REUTERS/Daniel Becerril

MEXICO CITY (Reuters) - Mexico’s central bank sold an additional $500 million in foreign exchange hedges on Tuesday to support the peso after the currency fell last week against the dollar on uncertainty over the economic outlook in 2018.

On Friday, the peso MXN=D2 hit its lowest level since mid-March against the dollar due to concerns over inflation and the potential impact on Mexico of new U.S. corporate tax cuts.

The peso initially rose by more than 0.7 percent against the dollar after Mexico’s currency commission announced the extra auctions, which were drawn from a $20 billion program set up in February to reduce exchange rate volatility.

The currency later pared most of its gains and was trading up 0.05 percent at 19.69 per dollar at 1530 GMT.

The central bank said it received bids worth $375 million for the $250 million in 57-day hedges put up for auction, and bids worth $255 million for the $250 million in 30-day hedges.

In a separate auction to renew 60-day currency hedges that was scheduled weeks ago, Mexico received bids worth $600 million for another $300 million on offer.

U.S. President Donald Trump signed a tax overhaul into law on Friday that cut the corporate tax rate to 21 percent from 35 percent, fueling worries that Mexico will lose out on investment to its northern neighbor.

Trump’s threats to tear up the North American Free Trade Agreement (NAFTA), the deal that underpins much of Mexico’s foreign trade, has also weighed on the peso. Market analysts say that is likely to continue into 2018.

Mexico’s finance ministry is evaluating whether to make fiscal changes in response to the U.S. tax cuts.

Editing by Dave Graham and Susan Thomas

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