The phrase of the “strong” peso will surely be the one that will go down in history at this stage of the Mexican exchange market, although various media continue to call the exchange rate strength that we see today a “superweight”. We must remember that we live in a time in which everything wants to change because, it is said, what was before was bad.
The weight has received various qualifiers or phrases that marked it at different times: “I will defend the weight like a dog”; “the December mistake”; “superweight” and “strong” weight,
But, what does the current strength of our currency have in common with the most recent one before the current one, because as we pointed out, it is totally false that the peso registers an appreciation not seen in 50 years, the periods of appreciation of the peso are cyclical,
In no way is it a question of disdaining the appreciation of the Mexican currency, simply to put it in its context; What we see today is completely linked to the global panorama, thousands of dollars reach the Mexican market attracted by one of the highest interest rates on the planet.
We have seen this movie
This film, now called Peso “hefty”, is a remake of the “Superpeso” from the beginning of the century. If we review the specialized publications of the time, we can verify it without any problem.
In the year 2001 the newspaper The Wall Street Journal, the bible of financial markets, stated in a note the following:
“Lawrence Summers, former US Treasury Secretary and architect of Mexico’s financial rescue in 1995, noted that the ability of Guillermo Ortiz Martinez, governor of the Bank of Mexico, to see the long-term exchange picture has done Mexico very well. ”.
From there the “Superweight“, the Mexican currency appreciated or remained stable for almost 5 years, before it began a depreciation process in 2006 that culminated in the 2008 subprime crisis.
But there were other characteristics at that time that today have many similarities with the context that surrounds us:
In 2001, the reference rate in Mexico was around levels of 13 percent., while in the United States it was placed at 6 percent; that is, there was a 700 basis point difference.
The United States had a negative outlook on its economic growthwith the possibility of a recession for 2002, which materialized on September 11, 2001 with the attacks on the Twin Towers in New York.
Latin America was in convulsion, with the irruption and consolidation of Hugo Chávez in Venezuela, the Cuban regime with Fidel Castro clinging to power, the still weak Brazilian democracy that was struggling to consolidate civil governments, plus the instability of the government in Argentina, with Fernando de la Rúa , which eventually foundered.
Europe was in the first years of the euro and long-term expectations were favorable but not the immediate ones, it took the continent a decade to unify, among other things, growth.
Oil prices were depressed trading above levels of 27 dollars per barrel in the expectation of lower economic growth.
Do some of the points mentioned above sound familiar to you, let’s see:
A) Mexico’s reference rate is already in double digits, closed 2022 at 10.5 percent and it is estimated that if the rate increase continues it will reach 11 percent, very close to 13 percent of those times. In the United States the rate is 4.5 percent, at this time there is a difference of 600 basis points, close to the 700 basis points of just over two decades ago.
In the United States a recession could register in the second half of this year or beginning of the next one; if it does not happen, what will happen is a sharp slowdown, since the World Bank projected a GDP of 0.5% for this year from a previous one of 1.2%
Latin America is in convulsion; the totalitarian regimes of Venezuela and Cuba have consolidated and, furthermore, some have been reborn, such as the case of Nicaragua, or perhaps El Salvador, while poverty is no less than it was then; in fact it is older. Brazil just suffered an assault on its democratic institutions on Sunday, for now it is at risk. Argentina continues to be in convulsion as it was then and the government of Alberto Fernández is making water, also threatening to founder. In Chile, the leftist Gabriel Boric does not have everything with him, governing is not the same as campaigning.
Europe is under the effects of a war, the first since the end of the Second World War, to which is added a virtual energy crisis and the economic weakness characteristic of the first world in the post-pandemic era.
Oil prices are not as low as they were in 2001, now trading at $78 per barrelbut they are down notably from last year’s highs of $120, due to expectations of an economic slowdown.
With this panorama, Thousands of investors allocate billions of dollars to the Mexican market in arbitration and trading operations that have led the peso to strengthen, to take advantage of those 600 basis points of difference and more.
It is clear, we are facing another cycle of the exchange market in Mexico, as it happens in many parts of the world. The only thing that seems to change is the name they give to what happens to our currency.
From those times in which they promised to defend him like a dog, until now that he is classified as “strong”, the fact is that as the classic would say: “history repeats itself”.
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