Wednesday, September 11, 2024

Mexican peso strengthens against US dollar for third day in a row

The Mexican peso appreciated against the US dollar for a third consecutive day on Thursday to trade well below 19 to the greenback.

The Bank of Mexico’s USD:MXN rate at the close of markets on Thursday was 18.65.

Bloomberg data shows that the peso strengthened on Tuesday, Wednesday and Thursday after closing at 19.07 to the dollar on Monday. The gains for the peso over the three-day period amount to around 2.3%.

Gabriela Siller, director of economic analysis at Banco Base, said on X Thursday afternoon that the Mexican peso was the currency that appreciated the second most on Thursday after the Russian ruble.

Foreign exchange news website FX Street reported that the peso rose on Thursday as the greenback “broadly softened.”

U.S. retail sales [in July] firmly eclipsed forecasts, causing investors to shrug off recent economic slowdown concerns. Rate markets pulled back on their bets of a double cut from the Federal Reserve (Fed) in September,” FX Street said.

The seal of the U.S. Federal Reserve
A double rate cut from the U.S. Federal Reserve is looking less likely. (Kurtis Garbutt/Flickr)

“… The jump in U.S. retail sales, a firm indication of good economic health, prompted a broad recovery in risk appetite, sending the greenback lower,” the news site said.

The peso depreciated to above 20 to the dollar earlier this month as fears of a recession in the United States — largely on the back of weak jobs data in the U.S. — upended markets around the world.

While the USD:MXN rate is now below 19, the peso has depreciated considerably since the comprehensive victories of Claudia Shienbaum and the ruling Morena party in the June 2 presidential and congressional elections. The peso closed at 17.01 to the dollar on the Friday before the election.

Concern over Morena’s legislative agenda, in particular a controversial judicial reform proposal, was the main driver of the decline in the post-election period.

The appreciation of the peso in recent days occurred despite the Bank of Mexico’s surprise decision to lower its benchmark interest rate by 25 basis points last Thursday even as headline inflation rose for a fifth consecutive month in July to reach an annual rate of 5.57%.

As FX Street notes, “higher interest rates are generally positive for the Mexican peso as they lead to higher yields, making the country a more attractive place for investors,” while “lower interest rates tend to weaken the peso.”

The consensus forecast among respondents to the most recent Citibanamex Expectations Survey was that the peso will end 2024 at 19 to the dollar.

The median forecast for the USD:MXN exchange rate at the end of 2025 was 19.70

With reports from Debate and FX Street 

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