The so-called “super peso” is benefiting Mexico.
And the fact is that the value of the Mexican peso has risen against the US dollar in 2022, reaching his best level in just over two years against the greenback.
This occurs to the extent that interest rates in both countries have been increasing at different speeds.
So far this year, the peso has risen 4.3% against the dollar, a jump that has led the Mexicans to talk about a “super peso”.
Now, it is important to bear in mind that the currencies of the largest economies in the region have also appreciated, with Brazil occupying the first place.
The only currency that has lost value this year against the dollar is the Argentine peso.
1. What is the reason for the rise in the Mexican peso?
There are several reasons. One of them has to do with interest rates in Mexico and the United States.
Latin America was the first region that began to raise rates, that is, to increase the cost of borrowing money.
To the extent that the Federal Reserve (Fed), equivalent to the US central bank, kept rates close to zero (what is known as the era of cheap money), Investors placed part of their money in emerging markets, which, although riskier, also offer higher returns.
But when inflation began to skyrocket, rates (or the cost of borrowing money) also began to rise in different countries of the world to try to control it.
Well, Latin American economies have rapidly increased the cost of d January with the aim of controlling the wave of inflation, and they have done so faster than in the US
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That’s why that experts say that the “rate differential” with the world’s largest economy has contributed to the appreciation of the Mexican peso.
The thing to keep in mind is that markets operate on expectations, and as there are now expectations that the Fed will not raise rates as much as expected, the dollar falls.
“That makes the dollar weaken a bit,” explains Carlos Gonzalez, director of Economic Analysis, Foreign Exchange and Stock Exchange of the Monex financial group.
And the same thing happens the other way around. The markets are waiting for the Central Bank of Mexico to decide soon on a strong increase in rates in that country, an expectation that strengthens the peso.
“That is the main reason that our currency has strengthened against the dollar”, he says in dialogue with BBC Mundo.
To complete the puzzle, other factors must also be considered, such as the fact that Mexico has relatively healthy public finances, the increase in remittances in the last quarter, the increase in oil prices and greater investor confidence in the Mexican peso.
2. How does the rise in the peso compare to that of other currencies in the region?
“With respect to other economies in Latin America, the Mexican peso is not the currency that has been appreciated”, comments Eduardo Carbajal, professor of Economics and Finance at the Tecnológico de Monterrey, in Mexico.
However, “the value it has acquired against the dollar in the year is remarkable”. Even, he adds, when analyzing exclusively the month of May, the Mexican peso is the second currency that has gained the most value, only behind the Brazilian real.
3. What can happen in the future?
Some analysts are betting that the appreciation of the Mexican peso will continue, to the extent that the Federal Reserve raises its rates at a rate slower and, on the contrary, the Bank of Mexico puts the accelerator.
Without a doubt, what happens in the neighboring country has a direct effect on the markets and the Mexican economy.
That is why investors are attentive to all the signals that the central banks of the two countries may deliver.
Other experts are inclined to the idea that the rise in the Mexican peso is something rather momentary.
“My opinion is that this strength is temporary and that the peso is overvalued, since there are no results from investing direct foreign pressure, industrial or GDP growth that support the peso in the medium term,” Carbajal tells BBC Mundo.
In any case, it is difficult to make projections with the high volatility that exists in the markets and the ongoing war in Ukraine, a conflict whose course remains uncertain.
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