Mexican peso tumbles on record GDP contraction

Mexico's peso was set for its worst day in two weeks on Thursday after data showed Latin America's second biggest economy contracted by double digits in the second quarter, while other currencies in the region slipped on surging coronavirus cases.

The peso fell as much as 1.3pc against the dollar after preliminary figures from the INEGI national statistics agency showed gross domestic product shrank 17.3pc in the second quarter, the sharpest drop on record. With Mexico still struggling with its coronavirus outbreak, and the

US recovery seemingly losing steam, the rebound in Mexico's economy will be slow over the coming quarters, said Nikhil Sanghani, assistant economist at Capital Economics.

Sanghani also said the data bolsters bets for the Mexican central bank to continue its easing cycle.

"We expect a total of 100bp of further rate cuts this year, including a 50bp reduction at the central bank's next meeting in August," he said.

Wall Street opened lower after data showed the US economy contracted at its steepest pace since the Great Depression in the second quarter as the COVID-19 pandemic shattered consumer and business spending, and a nascent recovery is under threat from a resurgence in new cases of the coronavirus.

Currencies in other parts of Latin America also weakened, with Brazil's real falling 0.3pc as the country set daily records on Wednesday for new COVID-19 cases and deaths.

The Colombian peso dropped as oil prices declined, and a Reuters poll showed Colombia's economy will have suffered the worst contraction in its history in the second quarter because of fallout from a coronavirus quarantine.

Local investors are also awaiting a central bank policy decision on Friday, where the Colombian central bank, or Banrep, as it is also known, is expected to slash its benchmark interest rate by 25 basis points.d

In Argentina, the government is considering pushing back a deadline for creditors to respond to its foreign debt restructuring proposal until mid- to late August, a source close to the negotiations told Reuters on Wednesday.

The MSCI's Latin American stocks index fell 1.5pc, with Brazil's Bovespa off 0.8pc and Santiago shares off 1.4pc.

Brazilian telecoms firm TIM Participações SA fell 2.5pc after reporting a 23.9pc drop in second-quarter net income compared with the same period a year ago.