Title: Superpeso’s Winning Streak Against Dollar at Risk, Says Monex
Subtitle: Grupo Financiero Monex predicts Mexican peso may return to April levels by year-end
Mexico City, XX, XX 2023 – After an impressive winning streak against the US dollar, the Superpeso’s fortunes may be about to change, according to analysts at Grupo Financiero Monex. The local currency depreciated by 1.23% against the dollar, erasing gains made over the past week. Despite remaining below 17.00 units, Monex expects the Mexican peso to return to April levels by the year-end with an anticipated exchange rate of around 18.15 units.
Janneth Quiroz Zamora, Director of Economic, Foreign Exchange and Stock Market Analysis at Monex, highlighted the potential risks facing the peso during the second half of 2023. These risks could stem from both internal and external events, keeping the balance of risks on an upward trajectory.
Quiroz Zamora outlined several local risks, including the widening current account deficit due to a slowdown in exports and remittances caused by a sluggish world economy. Additionally, an accelerated reduction in the interest rate differential between Mexico and the United States, as a result of rate cuts by Banxico and further hikes by the Fed, could impact the peso’s performance. The specialist also noted that a deterioration in public finances, exacerbated by a fall in budget revenue, and an increase in country risk due to fears of recession in the United States are further concerns.
From an external perspective, Quiroz Zamora pointed to a potential loss of dynamism in the US economic activity. Although the risks of a recession have diminished, they have not been completely nullified. The expert also warned of inflationary pressures due to supply shocks, such as rising cereal prices caused by the cancellation of the Black Sea Grain Agreement or droughts affecting the Northern Hemisphere. Moreover, the delay of investment plans due to nearshoring or a diversion of relocated investments to the United States or other countries adds to the list of external risks.
Despite these risks, the short-term outlook for the Mexican peso remains favorable. Quiroz Zamora expects the factors that have fueled the currency’s success so far this year to continue. Stability in the country’s public finances, Banco de México’s restrictive monetary policy, limited current account deficit, a resilient US economy, potential foreign capital inflows from nearshoring, signs of the Fed’s bullish cycle nearing its end, and the liquidity of the currency in the global market are cited as contributing factors.
The next catalyst for the peso’s performance will be the forward-looking guidance that the Fed provides next week, as investors assess whether the bullish cycle has reached its terminal rate or if there are further tightening measures to be expected.
As investors wait for further indications, the Superpeso’s journey remains uncertain. However, Monex’s warning regarding potential risks and their prediction of a return to April levels underscore the need for investors to keep a close eye on developments in the Mexican currency market.