Forex Investment and Currency Trading

Last week’s depreciation and volatility of the Mexican peso was of a scale not seen since the onset of the crisis of 1994-1995. After closing on October 7 at 12.3363 per U.S. dollar, the peso plunged to an intra-day low of 14.314 on October. Historical data on intra-day movements is not available, but if
the intra-day low had been the closing level then this would have been its largest daily depreciation since December 22, 1994. Of course, the rate of 14.314 also represents a record low for the peso. Before last week, the record closing low had been 11.665 on May 10, 2004.

Last week’s depreciation finally prompted the central bank to intervene, albeit through a series of auctions rather than direct transactions with commercial banks. It sold US$998 million on October 8 and a further US$1.502 billion last Thursday. In the event, this was insufficient to quell downward pressure on the peso, which closed at a record closing low of 13.5696 last week. Last Friday, the central bank conducted three auctions at which it sold a record US$6.4 billion. While the peso closed that day stronger at 13.175, this still represents a weekly depreciation of 14.7% and a cumulative
depreciation of 25.2% from its peak of 9.859 on August 4. The cumulative intervention last week of US$8.9 billion totals over 10% of Mexico’s foreign exchange reserves of US$84.116 billion reported on October 3.