The “super peso” is most definitely back.

The Mexican peso appreciated on Wednesday morning to reach 16.66 to the US dollar, its strongest position since July 2023.

By 1 p.m. Mexico City time, the peso had weakened slightly to trade at 16.68 to the greenback, according to Bloomberg but recovered to 16.67 by the close of the trading day.

While the peso reached a high of 16.62 last year, the USD:MXN exchange rate at the end of a trading day hasn’t been below the 16.66 level seen this morning since December 2015.

The peso has had a good month, appreciating by around 2.3% after closing at 17.05 to the dollar on Feb. 29.

On Tuesday, the currency was trading at 16.80 to the greenback at the close of markets, meaning that it appreciated just over 0.8% to reach 16.66 on Wednesday morning.

The El Financiero newspaper noted that the appreciation of the peso on Wednesday occurred as investors continue to bet that the United States Federal Reserve will cut its benchmark interest rate from the current 5.25%-5.5% range at some stage this year.

The peso has benefited from the wide difference between the Fed’s key interest rate and that of the Bank of Mexico (Banxico), which has remained at 11.25% since it was raised to that level in March 2023.

Mexico’s central bank is also expected to cut interest rates this year, possibly even as soon as next week after its board holds its monetary policy meeting on March 21. A cut in the U.S. before one in Mexico would likely benefit the peso, whereas the peso would probably weaken if Banxico moves first.

Inflation in Mexico remains above Banxico’s 3% target, but the headline rate did decline in February to reach 4.40% after increasing in the final two months of 2023 and in January.

Inflation in the U.S. ticked up to 3.2% last month from 3.1% in January.

Many analysts forecast in late 2023 that the peso would weaken this year after it appreciated around 13% against the dollar last year. But so far that hasn’t been the case. The currency was trading at just above 17 to the dollar at the start of January.

Beyond the Mexico-United States interest rate differential, other factors that benefited the peso in 2023 and have continued to do so in early 2024 include record-high incoming flows of remittances and strong foreign investment.

With reports from Radio Fórmula and El Financiero