The Mexican peso appreciated to below 17 to the US dollar for the first time since August on Friday morning.
Bloomberg data showed that the USD:MXN exchange rate was 16.93 at 9:20 a.m. Mexico City time. By 10:30 a.m., the peso had weakened slightly to trade at 16.96 to the dollar.
The last time the peso was stronger than 16.93 was Aug. 30, when it reached 16.74 to the greenback.
The currency has appreciated on four of five trading days this week after closing at 17.20 to the dollar last Friday.
According to the Monex financial group, the peso benefited on Friday morning from data that showed that inflation in the United States was lower than expected in November.
The personal consumption expenditures (PCE) price index, the preferred inflation gauge of the United States Federal Reserve, showed that annual headline inflation in the U.S. declined to 2.6% in November from 2.9% in October, while core inflation fell to 3.2% from 3.4%.
Reuters reported that the data boosted “financial market expectations of an interest rate cut from the Federal Reserve next March.”
The wide difference between the Bank of Mexico’s benchmark interest of 11.25% and the Fed’s 5.25%-5.5% range is one factor that has helped the peso strengthen this year after it started 2023 at around 19.5 to the dollar.
At its final monetary policy meeting of 2023, the Bank of Mexico board last week voted to keep the key rate at the record high 11.25% level, and the bank said in a statement that the board believes the reference rate “must be maintained at its current level for some time.”
Data published on Thursday showed that Mexico’s annual headline inflation rate was 4.46% in the first half of December, up from 4.32% in November, while the core rate was 5.19%, down from 5.3% in November. The central bank targets 3% inflation.
Another factor that contributed to the appreciation of the peso on Friday, according to Monex, was data that showed that the Mexican economy grew 4.2% in real terms in October compared to the same month of 2022, and 3.5% annually between January and October.
The peso also benefited from a global weakening of the dollar, the El Economista newspaper reported. The DXY index, which measures the value of the dollar against a basket of foreign currencies, was down slightly shortly after 10 a.m.
James Salazar, deputy director of economic analysis at CIBanco, told El Financiero that favorable inflation data out of the U.S. could help keep the peso below 17 to the dollar for the remainder of the year.
However, Monex’s director of analysis Janneth Quiroz told El Financiero that she expects a USD:MXN exchange rate of 17.35 at the end of 2023.
With reports from El Economista and El Financiero
Always appreciate these updates about the peso!
Peso is strength do to Mexico’s high interest rate no reason should be maintained at 11.5 % other than to keep pesos strong
Why does the headline characterize this as the “best” rate? A strong peso is not a good thing in many ways: it cheapens dollar remittances, reduces competitiveness vs other exporting nations, increases consumer buying power for imports which weakens Mexican manufacturing. It would be more accurate to characterize currrency rates in terms of higher or lower and leave out the value judgment.
The rising or stronger peso is not in the best interest of anyone except the Morena Party. AMLO is encouraging the wealthy Mexicans to buy these high paying bonds in hopes that they will continue to fund the Moreno party. One of the women running for the next Presidential election is a Moreno.
They may claim that this is to fight inflation, which is absurd, as most Mexicans don’t trade dollars to pesos. The only people that trade US$ to pesos are foreign workers sending money home. These US$ buy far fewer pesos. It certainly doesn’t benefit onshoring as this creates higher labor, materials, services and construction costs.
Can you imagine the US deficit if they paid 11.5% on treasuries? These rates are crippling the Mexican national economy. Once the new president is in, no matter who, these rates will be cut drastically. You will then see the peso have a significant drop. It will probably settle around 20:1 which provides for an easily manageable conversion rate.