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Mexican peso briefly falls 1% vs. US dollar after central bank hikes rates

Mexico Pesos
Susana Gonzalez | Bloomberg | Getty Images
Mexico Pesos

Mexico's central bank raised interest rates Thursday but failed to bring any relief to the nation's beaten-down currency.

The Mexican peso weakened to trade about 1 percent lower against the U.S. dollar, with the currency cross around 20.39 as of 2:56 pm ET. That's just around the record levels hit last week when the peso dropped more than 12 percent against the dollar after U.S. President-elect Donald Trump unexpectedly won the election.

Andres Jaime, global FX and rates strategist at Barclays, said the central bank's announcement generally matched market expectations and the move in the peso "was related to the fact that we have Trump as a president (elect) and the outlook for external accounts" such as the trade balance and current account. He expects the dollar-peso to remain near 21.50 over the next 12 months.

Trump has called for potentially withdrawing from the North American Free Trade Agreement, building a wall along the U.S.-Mexico border, and deporting millions of undocumented immigrants. The peso has been seen as an important market indicator both before and after the election.

U.S. dollar vs. Mexican peso 10-day performance

Source: FactSet

The Banco de Mexico raised its key rate by 50 basis points to 5.25 percent, as expected by the median of 15 analysts polled by Reuters. But the wire service said market expectations had slightly favored a hike of at least 75 basis points, and the slight disappointment resulted in weakness in the peso.

"In the weeks following our last monetary policy decision, the global economic backdrop turned more complex, as a consequence of the electoral process in the United States, among other factors," the Banco de México said in its statement released Thursday. "The events associated with said process led to an increase in volatility in financial markets around the world."

The iShares MSCI Mexico Capped ETF (EWW) traded about 1 percent lower at session lows as of 2:55 p.m., ET.

—CNBC's Fred Imbert contributed to this report.