Mexican peso gains on strong US manufacturing

MEXICO CITY: The Mexican peso rose on Friday after data revealing a pick-up in US manufacturing fueled optimism about Latin America's No. 2 economy, while other Latin American currencies were mostly flat.

Mexico's economy is deeply interwined with its northern neighbor, and its currency gained 0.82 to trade at 12.6075 after data showed US factory activity hit a nine-month high in January. The peso was trading at its firmest since Jan. 18.

The strong showing came as central bank meeting minutes revealed board members disagreed over whether to send a signal they might cut interest rates if inflation keeps cooling and growth stalls.

The Mexican peso had fallen more than 1 percent after reaching a 10-month high in mid-January, when the central bank warned it could cut the benchmark interest rate, damaging the appeal of the peso for investors.

The revelation of the division among board members over the threat may also have contributed to Friday's rally, analysts said.

"Probably, the market took it to mean the chances of a cut may be a little lower ... or that the minutes are a little less 'dovish' statement," said Ezequiel Aguirre, a Latin America strategist at Bank of America in New York.

The Brazilian real rose 0.05 percent to 1.9875 per dollar as investors slowly pushed the currency higher on the view that the central bank would tolerate a stronger exchange rate to fend off inflation pressures.

Citi strategists Kenneth Lam and Douglas Comin wrote in a research note that there is "some room for the real to rally further, but 1.95 will probably be the lower end of the range" that the government will tolerate in the near term.

In the opposite direction, the Chilean peso weakened 0.04 percent to 471.3 as investors digested central bank comments about the currency.

The comments, presented in minutes of the central bank's latest monetary policy meeting, showed no signs of heightened concern about the Chilean peso's recent gains, said Goldman Sachs' Senior Economist Alberto Ramos.

"This is consistent with our view that the authorities will continue to look for signs of currency misalignment and that intervention in the FX market is not imminent," Ramos wrote in a note to clients.