Among the good surprises that 2023 brought to Mexico, the exchange rate was perhaps the star. The Mexican peso has appreciated 13% against the dollar so far in 2023, making it the second currency (among the most used worldwide) with the best performance, behind only the Colombian peso (which has an appreciation of more than 19 %). The rise in the peso combines several factors, including the attractive performance of financial instruments, optimism due to the arrival of foreign companies and the fall in inflation in the United States.
On January 1 of this year, the currency was quoted at 19.47 pesos per dollar, starting the year with a slight appreciation that began at the end of 2022. By December 26 of this year, the currency reached a price of 16 .97 per dollar, which spent four days below 17 pesos per dollar, levels not seen since 2015. This represents the strongest appreciation for the peso in a calendar year since at least 2004.
“The peso was likely supported by strong exports, remittances and optimism around offshoring, as well as weaker-than-expected US inflation and labor market data,” summarized analysts at analysis firm FocusEconomics. based in Barcelona. Due to a hardening of hostility in US rhetoric towards China, companies began to reduce their purchases from the Asian country this year, while increasing imports from Mexico. Furthermore, the interest of many companies in leaving China to move their factories to “friendly” countries of the United States, such as Mexico, led investors to buy Mexican assets.
One of the most important factors was the rate differential. The Mexican central bank raised the reference interest rate to its highest level since the current monetary policy has been in force, reaching 11.25%. This pushed the flow of resources towards financial instruments denominated in pesos, especially the Federal Treasury Certificates (Cetes), since they offer returns higher than those in many peer countries and even compared to those in the United States. , where interest rates are around 5.25%.
Data from the Bank of Mexico show that Mexicans increased their investments in Cetes by 30%, reaching 1,270 million pesos this month, according to the latest data available. Foreign investors also increased their holdings by approximately 47%, according to an analysis by the firm Credicorp, based in Bogotá. At the end of last year, Credicorp points out, foreigners had Cetes worth 140,411 million pesos, while now they total 206,830 million pesos.
Credicorp points out that the recent appreciation of the peso has to do with the fall in inflation in the United States, due to the expectation of a possible reduction in interest rates in the United States.” In that country, the Federal Reserve increased interest rates to contain the rise in inflation and, given a recent reading showing a fall, the market expects the Fed to lower rates and, therefore, looked for alternatives with higher rates. returns. “This upward trend continued until the end of the year, reflecting the stability in the financial markets,” the analysts added.
Beyond the optimistic perception that having a strong currency has generated in Mexico, it has had unintended consequences. For some 11 million who depend on remittances sent by relatives abroad to live, it has represented a loss of purchasing power. On the other side of the coin are those who have high incomes and were able to buy more imported products and travel abroad.
FocusEconomics expects the currency to weaken by the end of 2024 “due to a narrowing positive interest rate differential with the U.S. FocusEconomics panelists forecast the peso will end 2024 at 18.57 per dollar and end 2025 at 19 .14 per dollar,” says a report published this month. From Mexico, analysts also expect a weakening, but have been adjusting their perspectives to be more optimistic. In its most recent survey of specialists, published on December 19, Citibanamex says: “The consensus now sees the peso at 17.50 per dollar at the end of 2023, below the estimate of 17.73 in our previous survey. The peso-dollar exchange rate is now projected at 18.65 by the end of 2024, up from 18.80 two weeks ago.”
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