Mexican Peso Strengthens Against US Dollar, Surprising Analysts
In the first half of March, the Mexican peso has shown a strong advance against the US dollar, reaching its lowest level of the year and nearing the 2023 minimum. As of mid-March, the peso has slowed its advance but continues to fight to stay below 16.70 units.
This year, the peso has already appreciated by 1.5%, driven mainly by the weakening US dollar. Analysts attribute this to the market’s expectation that the Federal Reserve will not rush to cut interest rates due to persistent inflationary pressures. Most bets are now on a rate cut in June, with the possibility of further cuts in the second half of the year.
Investors are strategically adjusting their portfolios to anticipate these rate cuts. Many turn to InvestingPro for information, data, and analysis to maximize their profitability in the stock market.
Despite analysts’ expectations of a limited appreciation of the peso, recent developments have gone against predictions. The Bank of Mexico is expected to begin cutting rates next week, which could lead to a gradual depreciation of the peso as the interest rate differential with the US decreases.
Other factors, such as a slowdown in remittance income, moderation in nearshoring enthusiasm, and an overvalued real exchange rate, could also contribute to a depreciation of the peso throughout the year.
As Mexico prepares for presidential elections in June, analysts anticipate periods of volatility in the exchange rate. BBVA Research projects levels of around 18.56 to 18.90 pesos per dollar leading up to the elections, with potential volatility in October and November.
Looking ahead, Citibanamex analysts expect the exchange rate to reach 18.58 pesos per dollar by the end of 2024, while BBVA Research places their projection at 18.20 units.
Overall, the Mexican peso’s performance in the face of changing monetary policies and external factors continues to surprise analysts, prompting investors to stay vigilant and adapt their strategies accordingly.