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The British bank's forecast was at odds with that of Moody's Analytics. The British bank's forecast was at odds with that of Moody's Analytics. Depositphotos

Prospects are good for the peso in 2023, Barclays reports

Fiscal austerity, nearshoring and political uncertainty in other countries are all working in Mexico's favor

The British bank Barclays has offered a rosy forecast for the Mexican peso, presenting an outlook that differs sharply with that put forward by Moody’s Analytics earlier this month.

The peso — one of the world’s best performing currencies in 2022 — could appreciate by over 4% against the U.S. dollar between now and the end of 2023, according to two Barclays analysts.

The analysts told a press conference Friday that the peso could trade at 19 to the U.S. dollar at the end of 2023, an appreciation of about 4.2% compared to its value of approximately 19.83 to the greenback at 11 a.m. Central Standard Time (CST) Monday.

Gabriel Casillas, Barclays’ head of Latin America Economics, and Erick Martínez, a New York-based exchange rates strategist with the bank, predicted that one U.S. dollar will buy 19.75 pesos at the end of this year, a slight appreciation for the latter currency.

The peso could appreciate slightly against the dollar by the end of the year, some analysts say.
The peso could appreciate slightly against the dollar by the end of the year, some analysts say. Depositphotos

Casillas said that “fiscal austerity, Mexico’s attractiveness for nearshoring and a shrinking investment universe” are all positives for the Mexican economy — and the country’s currency. Investors can no longer invest in Russia and they’re pulling money out of China due to political concerns, he said.

Martínez said that the peso has been supported by — and will continue to be supported by — the difference in interest rates between Mexico and the United States. The Bank of México’s benchmark rate is currently 9.25% whereas that of the United States Federal Reserve is 3-3.25%.

Among other advantages for the peso, Martínez said, are political stability in Mexico, the absence of capital flight from the nation’s economy and solid public accounts. The analyst expressed “clear disagreement” with Moody’s Analytics’ recent prediction that the peso could depreciate 20% against the U.S. dollar in coming months due to tightening monetary policy in the United States.

The dollar is “overvalued” now due to the Fed’s sharp interest rate hikes — 0.75% following its three most recent meetings — but will return to its “fair value” as the U.S. central bank relaxes its monetary policy, Martínez said.

He and Casillas predicted that the Fed’s monetary policy will ease as the U.S. economy slows, and the peso will benefit as a result — even though the Bank of México will likely adopt a less aggressive stance itself as inflation regulates here.

Mexico’s central bank has also raised rates by 0.75% following its three most recent monetary policy meetings as the bank seeks to tame high inflation — 8.53% in the first half of October.

Martínez said that the peso could suffer if the global economic situation worsens in early 2023, but predicted that it would regain any lost ground as central banks relax monetary policy once inflation has been brought under control.

The peso has appreciated over 3% against the U.S. dollar since the start of the year even as many other currencies lost ground against the greenback, which is seen as a safe-haven currency in times of economic uncertainty. The strength of the Mexican currency has been lauded by President López Obrador and has led some media outlets, such as Bloomberg, to dub it the “super peso.”

Martínez said that the currency could begin to come under pressure in 2024 due to political uncertainty in the lead-up to the Mexican presidential election, scheduled to take place in July of that year. The peso depreciated slightly against the U.S. dollar in Monday morning trading as the market factors in the likelihood of the Fed announcing another 0.75% interest rate hike this Wednesday.

With reports from El Economista, Reuters and Expansión

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