Dollar slumps against peso after Bank of Mexico raises interest rates

The dollar fell to its weakest level against the Mexican peso in a week after the Bank of Mexico delivered a larger-than-expected interest-rate hike. The greenback tumbled to 18.20 pesos after the central bank raised its benchmark rate by half a percentage point to 4.25%. By comparison, the greenback bought 18.51 pesos late Wednesday in New York. The central bank said it raised rates to prevent the weak peso from affecting its inflation expectations. The central bank currently sees inflation ending the year slightly above its target rate of 3%. Expectations that the Federal Reserve would soon move to raise interest rates have helped the dollar gain 5.5% against its Mexican rival so far this year, though the U.S. currency has trimmed its gains somewhat in recent weeks as investors dialed back their expectations for the pace of rate hikes. Of 26 analysts polled by Bloomberg, 9 expected no change at Thursday's meeting, 12 expected a quarter percentage-point hike, and 5 expected a half a percentage point hike.

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