Monday, June 17, 2024

Peso under pressure: currency has lost 6.4% against dollar this year

The peso has depreciated 6.4% on the dollar this year after losing 2.68% against the U.S. currency over four consecutive trading sessions this week. It is now at its worst comparative level since March.

One dollar was worth 21.43 pesos on Wednesday afternoon. 

The dollar has continued to strengthen due to the expectation of a stable monetary policy after U.S. President Biden nominated Jerome Powell for a second term at the head of the Federal Reserve.

An analyst at Banco Base, Gabriela Siller, said that at levels above 21 pesos per dollar the exchange rate could become volatile and surpass the year’s peak of 21.63, which it hit on March 8. 

She added that uncertainty about the next head of the Bank of México could make matters worse after President López Obrador withdrew Arturo Herrera’s nomination, and instead put forward Deputy Finance Minister Victoria Rodriguez for the position. “A nomination that doesn’t indicate respect for the Bank of México’s independence could generate uncertainty in the financial markets, given a greater perception of risk in Mexico, which would put additional pressure on the exchange rate and interest rates,” she said.

Omotunde Lawal of Barings, an investment management firm, stated the concern for Banxico’s independence in explicit terms. “I think that is why the peso is falling out of bed. People are worrying that this is a roundabout way for [López Obrador] to interfere with the central bank,” she said.

However, the peso’s poor show was as much a sign of the strength of the dollar, Monex Europe Analyst Ima Sammani said. “Markets are taking advantage of every moment of dollar strength that they can get in this environment, which is visible in business after Powell’s expected re-nomination,” she said.

With reports from El Economista

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