Mexican Peso Hits 7 Year High Against USD

The Mexican peso reached a 7-year high against the US dollar, having risen by more than 12% so far this year. The peso closed at 17.05 per dollar last week, its strongest level since December 2015.

The rise in the Mexican peso is likely due to a combination of factors, including the increasing inflow of foreign capital and the rise in bank interest rates in Mexico. The Federal Reserve’s decision to pause rate hikes could also contribute to the peso’s appreciation.

Real effective exchange rates across Latin America
Percent change from Dec. 2019 -> Jun. 2023

1. Mexican Peso (orange): +24%
2. Chilean Peso (red): +15%
3. Brazilian Peso (black): -4%
4. Colombian Peso (blue): -6%

How does this massive divergence make sense? pic.twitter.com/83PBEvCNv0

— Robin Brooks (@RobinBrooksIIF) June 17, 2023

Some analysts predict that the peso could appreciate to 16.74 unites per dollar by the end of July. However, others warn that a rapid appreciation of the peso could have negative consequences for the country’s economy, as it would make Mexican exports less competitive.

Despite this, the strengthened peso could reduce the impact of inflation, as it would make imported goods cheaper.

Mexico received US$15.3 billion in foreign capital in 2022, and analysts expect this figure to reach US$18.6 billion this year.

In addition, the country’s economy is expected to grow by 2.5% this year, which would be one of the fastest growth rates in Latin America. Earlier this month, Fitch Ratings affirmed Mexico’s credit rating at BBB- with a Stable Outlook. Mexico’s public debt is currently at 52% of GDP, which is below the median for countries with a BBB- rating.