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Aug. 1, 2008 3:15 PM PT _This article was originally on a blog post platform and may be missing photos, graphics or links. See About archive blog posts._ The Mexican peso’s value surged
against the dollar today and crossed a milestone: At the official exchange rate (i.e., the rate for big-money transactions) one dollar now buys fewer than 10 pesos. The last time the peso
was this strong -- and the dollar so weak -- was in 2002. At the official rate, one dollar bought 9.94 pesos today, down from 10.04 on Thursday and 10.89 at the end of last year, according
to Bloomberg data. The rate American tourists get already had fallen below 10 pesos in recent weeks, however, because the exchange rate for small-money transactions almost always is less
favorable than the official rate. As noted here, the peso has been on a hot streak since the end of June, bolstered in large part by the Bank of Mexico’s commitment to fighting inflation by
raising interest rates. The bank hiked its key short-term rate from 7.50% to 7.75% on June 20 and lifted it again, to 8%, on July 18. Higher interest rates tend to attract global investors
to a country’s bonds and money market accounts, which in turn supports its currency. WITH THE U.S. FEDERAL RESERVE’S BENCHMARK RATE AT JUST 2% -- AND VIRTUALLY NO CHANCE OF THE FED RAISING
THAT WHEN POLICYMAKERS MEET TUESDAY -- THE RATE GAP BETWEEN THE TWO COUNTRIES IS NEARLY AS WIDE AS THE GULF OF MEXICO. AND THAT’S BULLISH FOR THE PESO. The strong peso gives Mexicans more
purchasing power, of course, and has the opposite effect for American tourists headed across the border. But a robust peso is no good for Mexican exporters, and that’s the challenge for the
Bank of Mexico: How much economic damage is it willing to risk, with high interest rates, to beat back inflation?