The Mexican peso hits its strongest level against the dollar in 6 months

Mexico’s currency gained 0.12% vs the U.S. dollar in Thursday trading, extending its rally to 10 straight days after the central bank left interest rates unchanged at its Aug. 6 monetary policy meeting. 

The peso closed Thursday at 17.21 to the US dollar and dipped below 17.14 in early trading on Friday, an additional 0.58% gain and its strongest level against the U.S. dollar since Feb. 23.

Forbes México attributed Friday’s early action to a negative U.S. jobs report and said the peso is on pace to appreciate by 1.3% by the end of the week.

Mexico’s currency was also boosted by the central bank’s unanimous decision on Thursday to hold its benchmark rate at 6.50% for a second consecutive meeting, while hinting that rates would remain at the current level for the foreseeable future.

In a statement, Banxico’s board of governors said, “Headline and core inflation are expected to decline throughout the forecast horizon, albeit more gradually than previously anticipated.” 

Headline inflation slowed in July for a fourth consecutive month though the central bank does not expect it to converge to its 3% target until late next year.

In a social media post, Gabriela Siller, director of analysis at Grupo Financerio BASE, said the peso is also appreciating “due to the carry-trade,” a strategy whereby an investor borrows money in a currency with a low interest rate and invests those funds into higher-yielding assets or currencies. 

Siller said large global investors are borrowing in the U.S. and Japan, then investing in Mexico, indicating that the peso continues to benefit from a wide interest rate differential (Mexico’s 6.50% policy rate compares favorably to the U.S. Federal Reserve’s 3.50%-3.75% target range).

The newspaper El Economista said the U.S. jobs report (which noted that U.S. nonfarm payrolls fell by 23,000 jobs last month, following a downwardly revised increase of 20,000 jobs the previous month) prompted the market to reduce bets that U.S. interest rates will rise.

Monex Grupo Financiero concurred, saying in a statement that the peso’s advance against the dollar is “driven by the weakness of the dollar and a readjustment of expectations on the direction of the Federal Reserve’s monetary policy” at its next meeting in September.

With reports from El Economista and Forbes México

4 COMMENTS

Have something to say? Paid Subscribers get all access to make & read comments.
solar panels

Mexico’s first solar panel recycling plant coming to Jalisco

1
The project evolved in response to the growth of photovoltaic generation in Jalisco, which has approximately 1.6 million installed solar panels, equivalent to about 50,000 tonnes of equipment. 
Rueil-Malmaison, France - August 13, 2023: Sign and logo on the headquarters building of Schneider Electric, a French multinational company specializing in digital automation and energy management

Schneider Electric plans major Querétaro expansion to meet growing power demand

0
The French multinational did not make public any investment figure, but did predict that the 115,000 square meters of new industrial facilities should generate at least 4,000 jobs by the end of 2027.
KIA plant

Despite a Q2 dip, first-semester Foreign Direct Investment was Mexico’s highest ever

0
Mexico continues to attract FDI at a world-class pace, its January-to-June total representing an 89% increase in just five years. U.S. companies remain Mexico's biggest investors.
BETA Version - Powered by Perplexity