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Speculation and Overvaluation: The Mexican Peso Exchange Rate Debate

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Speculation and Overvaluation: The Mexican Peso Exchange Rate Debate

“Mixed Signals for the Mexican Peso Amidst Geopolitical Tensions”

Speculation surrounding the Mexican peso has led to a significant overvaluation, according to Gabriela Siller, director of economic analysis at Banco Base. Siller notes that the exchange rate should be around 18.60 pesos per dollar, but it was trading at 17.1790 per dollar during Israel’s recent counterattack against Iran.

Siller also highlights that only 22% of the peso’s exchange volume comes from the real economy, with the majority being driven by speculation. Despite the escalating tensions between Israel and Iran, bets in favor of the peso remain high in the Chicago futures market.

Janneth Quiroz, director of financial analysis at Monex, calculates the real exchange rate at 17.91 pesos per dollar, indicating that the peso is slightly overvalued. Quiroz explains that this calculation takes inflation differentials between the United States and Mexico into account.

The markets are already pricing in the possibility that the Federal Reserve will delay interest rate cuts until September, rather than June as originally planned. Additionally, increased risk aversion due to the Middle East conflict is weighing against the peso, according to Monex.

Despite closing the session on Friday at 17.11 pesos per dollar, marking a slight decline, the peso still has room to reach the levels of the real exchange rate based on Monex’s calculations. The ongoing geopolitical tensions are likely to continue influencing the peso’s performance in the coming days.

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