Mexico propped up the peso Thursday by selling at least $1 billion in U.S. currency in morning trading in an attempt to ease the prospect that president-elect Donald Trump's policies will hurt the economy.
Four traders told Reuters that Mexico's central bank made the transactions, but the bank did not make the amount of the currency sales public. The peso depreciated 20 percent in 2016, becoming one of the world's worst performing currencies.
Ford Motor Co. announced this week that it would no longer build a $1.6 billion plant in Mexico, reported Bloomberg. The peso tumbled 3.5 percent two days after that announcement.
Trump had suggested stopping money transfers from Mexican nationals in the United States unless the country agreed to pay for a wall on the U.S. southern border.
Trump also told Toyota and General Motors this week they would face a "big border tax" if they moved ahead with plans to make cars in Mexico and sell them in America, reported CNN Money. Trump had said during the campaign that the tax could be as high as 35 percent, noted the broadcaster.
"Imagine if you have a trade war: The peso can go from 21 to 25," Alberto Ramos, head of Latin America economic research at Goldman Sachs, told CNN. Pulling money out of Mexico "may create some very destabilizing dynamics for the Mexican economy."
Mexico had been the recipient of generous investments from foreigners recently, receiving $29 billion in 2015 and another $27 billion in 2016.
"Two interventions in two days suggest the central bank has become even more nervous," Masashi Murata, a Tokyo-based currency strategist at Brown Brothers Harriman & Co., told Bloomberg.
"Some investors may have concerns over Trump, of course. But Mexico's problem is a weak economy due to tightened fiscal and monetary policy. The market has priced in a weaker peso to offset a bad economy."
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