The peso is the financial news of May, without forgetting that its performance depends to a large extent on the monetary policy decisions made by the world’s central banks, especially the United States, a major reference institution for the Mexican currency.
As of May 29, the Mexican currency registers a gain of 9.75 percent, becoming the currency that earns the most in the global currency market.
In the month, the Mexican peso registered a level not seen for seven years since, according to information from Bloomberg, the Mexican currency reached a price of 17.43 pesos per dollar on May 15, which meant its best level since last May 2, 2016, when it closed at 17.20 units.
Weight appreciation factors
Various factors have been appreciating the peso for months and even years, they have been constantly recorded in these spaces; conditions have essentially not changed. Under current conditions we can state three elements:
1) The Mexican market registers strong flows of dollars and also constantly, as a result of exports, remittances and foreign direct investment. These flows are permanent in quantity and/or in expectation, which generates a favorable outlook for the national currency.
2) Interest rates and the restrictive monetary policy of Banco de México (Banxico), which maintains a difference of 625 base points compared to the Federal Reserve (Fed) of the United States; this interest rate factor has been a determining factor for a long time.
3) The depreciation of the dollar is another factor, the confidence of investors in currencies other than the dollar is part of the possibility that the Fed will maintain its rate level for a while, the famous monetary pause. Investors look for other assets that provide higher returns.
the favorable
The appreciation of the peso is positive for the Mexican economy because it reduces inflationary pressures; This factor has been decisive so that at times of greatest inflationary rise prices do not increase even more and the markets bought into the idea that inflation had peaked.
Actually, the appreciation of the peso has been more decisive in bringing down inflation than price control agreements or price limits for various basic products, which have contributed their share, but without a doubt the exchange strength was decisive.
Where does the weight go?
As we have pointed out in other installments, there are really no major risk conditions that could lead to a pronounced depreciation of the peso in the coming months.
On the contrary, it is possible that the Mexican currency will continue appreciating more, although at a slower pace since it has touched very long-term relevant levels.
The Mexican coin and foreign exchange market operators practically have the conditions to obtain “guaranteed” returns with the monetary pause already initiated by the Bank of Mexico (Banxico), and which will most likely also be carried out by the US Fed between June and July. If that happens, static yields will guarantee that operations such as foreign exchange swaps, which are very present in the national market, are constant, maintain liquidity levels and, therefore, the appreciation of the peso.
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