Mexican Peso Surges to 8-Year High, Analysts Predict Continued Strength

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The Exchange Rate Reaches its Best Level in 8 Years

The exchange rate reached its best level in 8 years this Friday, trading during the day at 17.0249 pesos per dollar, a level not seen since December 2015. However, analysts believe that the Mexican currency could gain even more ground against the US dollar and return to ranges of 16 pesos.

A Pattern of Behavior

According to Gabriela Siller, the Chief Economist of Banco Base, there has been a pattern of behavior since July of last year. The peso appreciated around 7% in a period of two months and then rebounded, showing a depreciation of around 4%. Siller stated, “If it continues, the peso could appreciate to the level of 16.74 pesos per dollar in July of this year and then bounce to 17.50 and then appreciate again to a level close to 16.40. This would happen if there is no event or news that generates fear about the world or about Mexico.”

Response to Credit Rating Ratification

Siller specified that this Friday the exchange rate responded to the news of the ratification of the credit rating by Fitch. A rating cut and possible loss of investment were among the great fears of this administration, along with the loss of autonomy of the Bank of Mexico.

Positive Week for the Peso

According to Base, the peso closed the week with an appreciation of 1.12% or 19.3 cents, trading around 17.09 pesos per dollar. The exchange rate reached a maximum of 17.3353 and a minimum of 17.0249 pesos per dollar, a level not seen since December 18, 2015. With this, the Mexican currency gained ground for four consecutive weeks, accumulating an appreciation of 69.7 cents or 3.92% in that period.

Expectations for the Future

Ve por Más (Bx+) estimates that the exchange rate will rebound somewhat in the coming quarters, assuming that the rate differential between Banxico and the United States Federal Reserve (Fed) is reduced in the near future. The financial institution also foresees a global recession expected between the third and fourth quarters of this year, which would generate risk aversion in financial markets and affect the performance of assets denominated in emerging currencies.

Factors Affecting the Exchange Rate

Bx+ also predicts that the economic slowdown of the US economy will have a negative impact on Mexico’s external accounts, including exports, remittances, and foreign investment. Additionally, the 2024 presidential elections could produce additional volatility.

BBVA Mexico’s Report

According to the BBVA Mexico “Situation Mexico” Report, the Mexican peso has exhibited strength in recent months due to factors such as the high interest rate differential with respect to the Fed, fiscal soundness, and the forecast of low current account deficits in the short and medium term. BBVA Mexico anticipates a gradual depreciation of the peso and estimates that the exchange rate will be located at 18.5 pesos per dollar at the end of this year.

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