After closing Wednesday at 16.54 to the US dollar, the peso gained more steam overnight and was trading at 16.50 early Thursday morning — its strongest rate since Dec. 2, 2015.
However, things reversed course over the rest of the day Thursday, leaving one greenback worth 16.58 pesos as of 5:30 p.m. Mexico City time, a 0.24% decrease for the peso from Wednesday’s closing but very close to where it opened the week (16.61).
Nuevo mínimo del año en mínimo de 16.5057 pesos por dólar, no visto desde el 2 de diciembre del 2015 pic.twitter.com/BRIQKboomz
— Gabriela Siller Pagaza (@GabySillerP) April 4, 2024
For the sake of comparison, the exchange rate in April 2020 reached 25.45 pesos to the US dollar.
Meanwhile, according to forecasts for 2024 from the Bank of Mexico (Banxico) released Thursday, the central bank expects the dollar to trade in 2024 between 17.68 and 18.67 pesos to the US dollar. That may be conservative given that the peso surpassed 2023 forecasts, breaking the floor of 17 pesos per US dollar.
Banxico expects inflation to continue its downward trend, which began in 2022, after a historical 8.7% high in September. Banxico predicts 4.02% inflation in 2024, still shy of the bank governors’ ideal of 3%.
Banxico also announced its growth forecast for Gross Domestic Product (GDP): 2.29% in 2024.
Mexico’s economy witnessed a slight drop in consumer confidence, from 47.4 in February to 47.3 in March, according to the national statistics agency (INEGI).
Data shows the economy still growing but that it began to lose some momentum as March’s PMI decelerated amid Banxico’s high interest rates, despite a reduction from 11.25% to 11% last month. PMI, or Purchasing Managers’ Index, is a statistic that surveys companies monthly to gauge economic health.
In the U.S., Federal Reserve Chair Jerome Powell said regarding interest rates Wednesday, “We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2%.”
However, Powell did say that the Fed expects to reduce its rate three times in 2024.
Meanwhile, Mexico’s remittances are still a driver of the peso’s strength. While Mexico received US $36.06 billion in foreign direct investment (FDI) in 2023, remittances for last year amounted to $63.31 billion, a ratio some experts told the publication EL CEO is problematic.
“We must not fail to point out that this is a gap in Mexico’s productive capacity and a lack of opportunities,” El CEO wrote.
A Reuters poll published on April 4 said that most economists foresee the peso weakening 4.7% to 17.38 pesos to the US dollar in 12 months.
As long as the US debt keeps going up and the credit rating keeps dropping the peso will remain strong. No different in the US if you have a bad credit score and want to borrow money the interest rate is always higher. The US can’t stop spending and borrowing. Sad situation.
I think you’ll find that the U.S. debt, as bad as it is and getting worse, has very little to do with the value of the Mexican peso. The U.S. dollar is doing very well against the Canadian and Australian dollars ($1U.S.=$1.3598 Canadian. $1U.S. = $1.5210 Australian. As of April 5, a.m.). It’s also doing well against the British pound sterling and the euro, as well as other currencies.
A big difference is the mega manufacturing investments being made in Mexico by countries around the world for the new emphasis on “near-shoring” to help eliminate the trade blocks caused by COVID 19.
Good thoughts.
You’re right on target with your assessment. I also think the other factors weighing in on the rates is the record number of remittances. The billions of USD moving south each month from Mexican workers in the US affects currency exchanges. What the current exchange rate tells me is that Mexican banks are sitting on large caches of US currency. As you state, the foreign direct investment in Mexico is record breaking—those investments affect currency exchange. Lastly, balance of payments favors Mexico, which is now the US’s primary trading partner. Current exchange rates have little to do with the US debt. It will be interesting to see whether Mexico take actions to weaken their currency, relative to the dollar.
35 years ago I heard my first speech about the end of the US because of debt and spending. Unfortunately those same talks are given today, often by Canadians and other non American countries so you invest in their funds. For those that listened sadly most are still working past 60.
If the US falls Mexico will collapse.
16.48, Fun!
I really feel bad for our Canadian friends. At 12.13 many say they struggle to even afford Mexico. A hundred grand Canadian salary is becoming minimum wage. Which is the poor country, Canada or Mexico?