Mexican Peso Gains Ground Against Dollar, Reaching Record Levels
© Reuters. By Julio Sanchez Onofre
In recent weeks, the Mexican peso has experienced a remarkable surge against the dollar, reaching exchange rate levels not seen since 2015. It is now approaching the floor of 17.00 units per dollar, accumulating a 12% profit this year.
This Wednesday at 1:00 p.m., Mexico City time, the dollar was priced at 17.11 pesos, marking a 0.53% appreciation compared to the previous session’s close. This gain can be attributed to the weakening of the US currency.
Weakening Dollar Drives Mexican Peso’s Rise
“The weakness of the dollar began with the testimony of Powell before the Financial Services Committee of the House of Representatives, which started at 8:00 a.m. (Mexico City time). The market anticipated restrictive comments from Powell, but so far, that hasn’t been the case,” said Gabriela Siller Pagaza, director of Economic and Financial Analysis at Banco Base.
During the hearing, Powell emphasized that the Federal Reserve still has a long way to go in achieving the 2% inflation target. He also stated that the expectation of raising rates by an additional 50 basis points this year is a “really good” assumption.
Factors Driving the Mexican Peso’s Resilience
The attractive rate differential between the central banks of Mexico and the United States, along with Mexico’s fiscal health and optimistic expectations regarding nearshoring, have contributed to the Mexican peso’s resilience and strength in the face of external shocks.
As a result, analysts have revised their exchange rate forecasts, reflecting a stronger outlook for the Mexican peso.
Analysts Project Lower Exchange Rate for Mexican Peso
In the latest edition of the Citibanamex Expectations Survey (ECE), analysts’ consensus projects the exchange rate to be at 18.32 pesos per dollar by the end of 2023. This updated forecast is lower than the previous estimate of 18.70 units.
Notably, two financial institutions now predict the exchange rate to fall below 17.00 pesos per dollar by the end of the year. BNP Paribas forecasts 16.70 units, while XP Investments projects 16.95 for 2023.
These revised projections contrast with the previous edition of the survey, where BNP Paribas had the most optimistic scenario with an exchange rate of 17.90 units per dollar.
The Citibanamex Survey also indicates that analysts expect a smaller depreciation of the Mexican peso next year compared to previous expectations.
Varied Projections for the Mexican Peso
BNP Paribas projects even greater strength for the Mexican peso by the end of 2024, placing the exchange rate at 16.50 units. On the other hand, Masari Casa de Bolsa predicts the USDMXN to be at 20.70 units.
Stay updated with the latest developments in the Mexican peso’s performance and exchange rate fluctuations.
Al Analysis at Banco Base.
The Mexican peso’s gain against the dollar is also linked to the positive news of a potential trade agreement between Mexico, the United States, and Canada. The ongoing negotiations have generated optimism in the markets, boosting the value of the peso.
However, it is important to note that the Mexican peso’s rise is not solely attributable to these external factors. Mexico’s central bank has implemented measures to stabilize the currency and reduce volatility, which have had a positive effect.
Overall, the Mexican peso’s recent surge against the dollar is a result of a combination of factors, including the weakening of the US currency, positive trade news, and measures taken by the Mexican central bank. This trend is bringing the peso to record levels against the dollar, which has not been seen in years.
How has Banco Base analyzed the recent surge of Mexican peso against the dollar, taking into account both external factors and measures taken by Mexico’s central bank?
Banco Base has analyzed the recent surge of the Mexican peso against the dollar by considering both external factors and measures taken by Mexico’s central bank. They have examined the impact of global economic conditions, such as changes in the US dollar index and fluctuations in commodity prices, on the exchange rate.
Additionally, Banco Base has evaluated the measures implemented by Mexico’s central bank, known as Banco de Mexico. These measures include interest rate hikes and intervention in the foreign exchange market through currency auctions. The bank has assessed the effectiveness of these measures in stabilizing the peso and attracting foreign investment.
Furthermore, Banco Base has considered other factors, such as inflation rates, economic indicators, and investor sentiment, to have a comprehensive understanding of the peso’s surge. They have utilized both qualitative and quantitative analysis techniques to evaluate these various factors and their impact on the peso-dollar exchange rate.
By analyzing both external factors and central bank measures, Banco Base aims to provide informed insights and predictions regarding the future movements of the peso against the dollar. This analysis helps clients and investors make informed decisions in managing their currency exposure and investments in Mexico.