The Mexican peso traded below 17 to the US dollar on Wednesday, but the currency will weaken significantly in 2024, according to the results of a recent survey of more than 30 banks, brokerages and research organizations.
The peso strengthened to just under 16.91 to the greenback on Wednesday morning before weakening slightly. One US dollar was trading at 16.93 pesos at 1:30 p.m. Mexico City time, according to Bloomberg.
The 16.91 level was the peso’s strongest position since Aug. 30, when it reached 16.74 to the greenback.
The USD:MXN exchange rate has mostly remained below 17 since the peso strengthened to 16.93 to the dollar last Friday on the back of data that showed that inflation in the United States was lower than expected in November.
After starting 2023 at around 19.5 to the dollar, the peso strengthened significantly this year due to a range of factors including the vast difference between the official exchange rates in Mexico and the United States, strong incoming flows of investment and remittances and healthy tourism revenue.
The national currency has been dubbed the “super peso” on various occasions this year, including when it strengthened to a near eight-year high of 16.62 to the dollar in July.
But the peso’s superpowers will wane in 2024, according to all 33 banks, brokerages and research organizations consulted by Citibanamex for its most recent “expectations survey.”
In a survey report published Dec. 19, the bank said the consensus forecast is that the USD:MXN exchange rate will be 17:50 at the end of 2023 and 18.65 at the end of 2024, an election year in both Mexico and the United States. The latter forecast represents a 9.3% depreciation for the peso compared to the 16.91 rate it reached Wednesday morning.
Ten of the 33 entities surveyed by Citibanamex, including Banorte, Morgan Stanley and Santander, forecast that the peso will trade at or above 19 to the dollar at the end of next year.
Masari Casa de Bolsa, a Mexican brokerage, made the most pessimistic prediction for the peso, anticipating a USD:MXN exchange rate of 19.70 at the close of 2024.
While none of those surveyed predicted that the peso will be below 17 to the dollar at the end of next year, five entities – BNP Paribas, HSBC, Multiva, Natixis and Vector – forecast that it will be below 18.
Vector, a Mexican brokerage, made the most optimistic forecast, predicting a 17.40 rate at the end of 2024.
The other respondents to the survey – i.e. the majority – made forecasts of between 18.00 and 18.80.
For its part, the federal Finance Ministry said in a document in September that it anticipated a 17.60 exchange rate at the end of next year.
Citi Global Wealth, an investment division of Citigroup, noted in its “Wealth Outlook 2024” report earlier this month that “inflows of foreign capital associated with U.S. nearshoring” drove a 20% appreciation of the peso to 16.62 to the dollar in July.
“As electoral uncertainty picks up ahead of the June 2, 2024 general elections, this longer-term [nearshoring] trend should at a minimum continue to provide a floor under the peso,” Citi said.
Later in the report, Citi said that it views a USD:MXN exchange rate in the 19.00 area “as much closer to fair value.”
However, “[we] fully recognize that the strong nearshoring flows could keep this currency relatively overvalued for some time to come,” the bank added.
Foreign direct investment in Mexico reached a record high of almost US $33 billion in the first nine months of the year, while foreign companies made investment announcements totaling more than $106 billion between January and November. That money is expected to flow into Mexico in the next two to three years.
Among the other consensus forecasts derived from the Citibanamex survey were that the Bank of México will make an initial cut to its record high 11.25% interest rate next March, and that the Mexican economy will grow by 2.3% in 2024.
With reports from El Financiero and El Universal
I remember about 16.5% at a Tijuana money exchange house late last week but that is after the bite of a commission.
Seems impossible:
“In a survey report published Dec. 19, the bank said the consensus forecast is that the USD:MXN exchange rate will be 17:50 at the end of 2023”
The Peso has appreciated since Dec. 19th from 17.114 to 16.889
How exactly can we trust these estimates when the first prediction 17.5 in a few days is already off the mark.
Mexican people like it if they are buying US Goods, but they do not like it if they are receiving remittance from the USA or Canada. Husbands, Sons, Daughters working outside Mexico and sending money back are not getting what they are accustomed to. Foreign investment in manufacturing has been budgeted at 18-1. At 16-1 or lower, many deals will be canceled or delayed. Mexico is looking good right now, but if things get to good, it will backfire.
With the recent closing of 3 or 4 borders in Arizona and Texas, international trade is suffering, they had a meeting in Mexico City this week, more “talks”. They’ll meet again in January, still no date for a meeting has been set, no commitment. This will be interesting how it will play out for the exchange. Beaches are empty here, empty condos. Shame
Both the US and Mexican economies are quite strong right now, and there doesn’t seem to be any underlying forces at play that will change the upward valuation in the Mexican Peso.
It would appear interest rate increases on both sides of the border are over and the US will likely lower its rate slightly in the coming quarter. As far as I can tell, the Bank of Mexico is comfortable with its 11.25% rate, and given the backlog in direct foreign investment flowing into Mexico over the next couple years, the Peso will remain elevated.
Just a guess, but I can imagine a 15.5 — 17.5 range in the Peso in 2024. I don’t see the Mexican election in June 2024 upsetting this apple cart, nor do I think the US election outcome will matter much either. Mexico’s government finances seem stable, and in some respects in better shape than the US.