The Mexican peso has broken the barrier of 17.50 pesos per dollar this Monday, reaching an appreciation against the US currency, a level not seen for seven years. During the day, the currency traded at 17.42 units per dollar. The peso closed the session this Monday with an appreciation of 0.91%, with the exchange rate reaching a maximum of 17.6192 and a minimum of 17.4207 pesos per dollar, not seen since May 3, 2016. Although at the beginning of This Tuesday the peso lost a little ground against the dollar with a price of 17.50 units, it continues with a good rhythm. During the session, the exchange rate is expected to trade between 17.40 and 17.58 pesos per dollar. From the end of 2022 to the minimum of this Monday, the peso accumulates an appreciation of 11%. While the peso strengthens, the dollar continues without raising its head in the absence of a resolution in the discussion on the debt ceiling in the US.
According to analysts, the strength of the Mexican peso is explained by a combination of aggressive increases in interest rates, a relatively calm market, the flow of dollars that arrive in the country from exports and foreign direct investment, as well as an unprecedented level of remittances – the country received remittances for more than 58,000 million dollars in 2022. These factors have made the peso a darling among currency investors in the past year, and so far, the strength extends into 2023.
Gabriela Siller, Director of Analysis at Banco Base, explains that at the moment there is an international preference for investing in pesos. ”When there is no risk aversion, investors leave their positions in dollars and look for other assets that give them better returns. The Mexican peso is also preferred because it is the most liquid currency in all of Latin America, so it is easy to exit positions in Mexican pesos in a short period of time if necessary, ”she details.
The specialist points out that in the short term the peso may continue to appreciate with the expectation that the Federal Reserve will no longer continue raising the interest rate, which causes capital to move from the United States to other countries, including Mexico. . However, in the medium term the peso could depreciate moderately, given lower flows of dollars arriving in the country and the possibility of a recession in the United States. This could be exacerbated if the US government does not reach an agreement with Congress to raise the debt ceiling. This Monday, the speaker of the House of Representatives, Kevin McCarthy, mentioned that they are far from reaching an agreement and the Secretary of the Treasury, Janet Yellen, added that the Treasury Department could stop covering its obligations as of June 1.
The Mexican Stock Exchange closed with profits this Monday. The referential stock index reported an increase of 0.57% to 55,261.42 points, in full expectation of the monetary policy decision that the Bank of Mexico will issue this Thursday regarding the level of interest rates. Various analysts point out that this decision will mark the end of the cycle of rate increases that began in June 2021. Within the index, the shares of the mining company Industrias Peñoles led the advance, with 4.80% more to 282.14 pesos, followed by by those of the airline Volaris, which added 4.16% to 22.02 pesos.
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