Mexico central bank sees ‘adverse environment’ for peso in 2018: paper

© Reuters. Tourists are reflected in a window as they look at a board displaying the exchange rate for Mexican peso and U.S. dollar at a foreign exchange bureau in Mexico City © Reuters. Tourists are reflected in a window as they look at a board displaying the exchange rate for Mexican peso and U.S. dollar at a foreign exchange bureau in Mexico City

MEXICO CITY (Reuters) – Mexico’s peso faces an “adverse environment” in 2018 due to U.S. tax reforms, uncertainty over a key trade pact and elections in July, central bank governor Alejandro Diaz de Leon said in an interview published by newspaper El Financiero on Wednesday.

“We have been pointing out that the external and internal environment is adverse, but we have also highlighted that the country’s macroeconomic strength is very noteworthy,” Diaz de Leon said.

On Tuesday, the peso <mxn=d2> hit a nearly 10-month low despite the Banco de Mexico’s move to raise the amount to be auctioned in its currency hedging program aimed at propping up the local currency.</mxn=d2>

“The objective (of raising the amount to be auctioned) has no message about the level of the exchange rate but only to provide more favorable conditions in terms of liquidity and depth,” said Díaz de Leon.

Last week, the United States approved a massive $1.5 trillion tax overhaul that slashes the corporate rate and reduces taxes for many individuals as well, which has prompted fears that investment in Mexico could slow.

Uncertainty over the ongoing renegotiation of the North American Free Trade Agreement (NAFTA) is also seen as a factor weighing on the peso.

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