UBS specialists also point out that the discreet government response to the COVID-19 pandemic benefited the peso, as the government managed to maintain fiscal stability by not increasing its debt level, compared to other emerging and developed markets that provided more fiscal support during the pandemic.
As for the country’s healthy external finances, UBS executives point out that the country’s accounts remain in good condition, despite having registered a deficit of 1.3% of GDP in the current account balance during the first half of this year. year. And although there was a deterioration due to the expansion of the energy deficit, given that Mexico imports more gasoline than it exports oil, this fact has been offset by the record number of remittances received, foreign direct investment and the recovery of international tourism.
The peso, a favorite currency
The currency has become the third most traded currency among emerging countries, with a market share of 7.8%, behind China, which has 36.1%, and the Indian rupee, with 8.4%, according to data from the Bank for International Settlements.
Its high liquidity, full convertibility and the existence of a wide range of instruments for risk coverage are key characteristics that allow Mexico broader access and lower costs in global markets, according to an analysis prepared by Banorte Estrategia, led by by Alejandro Padilla.
According to Banxico, 82% of peso exchange operations are carried out abroad. This is how the Mexican currency has a wide market penetration since transactions occur 24 hours a day around the world under good operating and liquidity conditions. This has induced the peso to be used as a form of coverage (“hedge”) against fluctuations in emerging markets, reveals Banorte Estrategia’s analysis.
Regarding the macroeconomic data from the United States, the foreign exchange market has reacted to the publication of economic data and monetary policy decisions, since some figures point to an economic slowdown, which has weakened the dollar due to the appetite for risky assets. The weak expectations of the main companies in the technology sector have reinforced this fact, according to the Banorte study.
Taken together, the foregoing keeps the Mexican peso resilient. The national currency is expected to continue with a positive bias, compared to the currencies of other central banks that have finished their restrictive cycle.
This week, the local currency closed at 18.9 per dollar, its best level since February 2020, according to data from Banxico.