A woman counts Mexican peso bills in a currency exchange.Bloomberg Creative Photos
The Mexican peso broke a new barrier this Wednesday, trading at 17.31 units per dollar, a level not seen since May 2016. The currency started the session appreciating 0.42%, equivalent to 7.2 cents, with the exchange rate hitting a maximum of 17.4 and a minimum of 17.3 pesos per dollar, making it the third highest performing emerging market currency gains against the dollar. The Mexican currency’s good rhythm is now continuing amid expectations that the Federal Reserve will pause on rate hikes at its next monetary policy meeting, the Turkish lira debacle and the OECD’s upside forecasts
Financial optimism is shared with the forecasts of multinational organizations. This Wednesday, the Organization for Economic Co-operation and Development (OECD) upgraded its expectations for Mexico’s GDP growth in 2023 to 2.6%, while its forecast for next year remained unchanged at 2.1%. A good development in private consumption will serve as one of the engines of national economic growth, accompanied by an unprecedented pace in the creation of new sources of employment. The number is slightly below forecasts by Mexico’s Minister of Finance and Public Credit, Rogelio Ramírez de la O, who forecast year-end growth of 3%.
According to Intercam’s analysis, the dollar has lost 1.3% of the ground it gained in May, which is also reflected in the cross with the Mexican peso, but the main impact was the appreciation of the national currency and the weakness of the Turkish lira, which has increased since the re-election of President Tayyip Erdogan lost more than 15% on May 28, and especially after the conflict that has arisen in recent months on the Bosphorus, the strait that connects the Black Sea with the Aegean and the Mediterranean Sea and the one that Transit costs have increased fivefold since the end of last year.
The President of Mexico, Andrés Manuel López Obrador, boasted about the strong exchange rate against the dollar in his usual morning conference on Wednesday. “It hasn’t been like this since 2016. What strengthened the weight is unique in 50 years. It is the currency that has appreciated the most in the world,” he stressed this morning. Many investments are coming, foreign investors are welcome. And they know that in Mexico there is security for investment, that Mexico is a country of economic stability and political stability,” he said.
In an environment where the dollar weakened and other currencies gained ground, the Mexican peso has taken the lead. Analysts agree that the Mexican peso’s strength is due to a combination of aggressive rate hikes, a relatively quiet market, the influx of dollars entering the country for exports and foreign direct investment, and unprecedented levels of remittances the country has already broke the record of more than $60,000 million in foreign funds. These factors have made the Mexican peso a darling of currency investors over the past year, and so far its strength has increased through the first six months of 2023.
At the end of the day, Banco Base reported that the peso ended the session up 0.12%, or 2.2 cents, trading at around 17.36 pesos per dollar, with the exchange rate hitting a maximum of 17.4 and a reached a minimum of 17.3 pesos per dollar, a level not seen since May 3, 2016. The peso’s appreciation came alongside several emerging and commodity producing currencies after oil prices closed at $72.59 a barrel, up 6.6% in the last five sessions.
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