Peso closes at strongest level against the US dollar in 7 1/2 years

Peso, den mexikanska valutan, har stärkts med cirka 12,6 % mot dollarn i år. Det finns ingen hejd på den mexikanska peson: valutan apprecierade igen på fredagen för att nå sin starkaste nivå mot den amerikanska dollarn på sju och ett halvt år.

The peso, the Mexican currency, has appreciated by around 12.6% against the dollar this year. There is no stopping the Mexican peso: the currency appreciated again on Friday to reach its strongest level against the US dollar in seven and a half years.

Bank of Mexico data shows that one dollar was worth 17.05 pesos at the close of trading and only 17.02 pesos at one point earlier in the day. The latter USD/MXN exchange rate was the strongest position for the peso since December 2015.

The peso appreciated almost six centavos, or around 0.34% on Friday, after the dollar closed at just above 17.11 pesos on Thursday. The cumulative appreciation this week was 1.24%, after the peso reached a new seven-year high last week. The Mexican currency has now appreciated by around 12.6% against the dollar this year.

The latest appreciation came after the US Federal Reserve decided on Wednesday to leave its key interest rate in the range of 5 – 5.25%. This decision followed ten consecutive rate hikes in the US.

The Fed signaled that two more hikes are likely this year. Yet the dollar is weakening “with bets on a quick end” to the monetary tightening cycle in the US, El Economista newspaper reported.

High interest rates in Mexico – the central bank’s reference rate is currently 11.25% – are seen as a factor contributing to the peso’s positive performance this year. Strong incoming flows of foreign capital and remittances are among the other factors mentioned by analysts.

Gabriela Siller, head of economic analysis at Mexican bank Banco Base, said on Twitter that the peso responded positively to Fitch Ratings’ decision to keep Mexico’s sovereign credit rating at BBB- with a stable outlook.

“A rating downgrade and possible loss of investment was one of the major concerns [under] of this administration, along with the loss of autonomy for the Bank of Mexico. Although key institutions in Mexico have been weakened and the economy took a long time to recover from the downturn caused by the pandemic, the [pågående] autonomy of the Bank of Mexico and the investment grade credit rating provide security to international investorsshe says.

“This, along with the golden opportunity for nearshoring – which we are not taking full advantage of – provides a good outlook for the peso,” she added.

Siller also said the peso has shown a “pattern of behavior” since July last year where it appreciated by around 7% against the dollar over a period of two months before depreciating by around 4%.

If that pattern continues, “the peso can rise to 16.74 pesos against the dollar in July and then [flytta] to 17.5 … [innan] it appreciates again to a level close to 16.4. This would happen if there is no event or news that creates fear for the world or Mexico”she wrote.

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