The Mexican peso jumped 2 percent against the U.S. dollar Tuesday after Mexican authorities announced a new currency intervention measure.
Mexico’s foreign exchange commission said in an afternoon release that Banco de México, also known as Banxico, would offer up to $20 billion in foreign exchange hedges. The commission said the program will not use the central bank’s international reserves, theoretically increasing the amount of dollars Banxico can use to support the peso.
Traders “know the central bank has more ammunition to intervene in the market if it weakens,” said Andres Jaime, global FX and rates strategist at Barclays.
Jaime said the news should also force many traders to buy the peso after selling it short, or in expectation that it would fall further.