Since Monday, June 3, the Mexican peso has experienced a significant depreciation against the US dollar, declining by 8.75% or 1.48 pesos per dollar until Thursday. This shift in exchange rate dynamics has been influenced by a confluence of domestic and international variables, reflecting the intricate interplay of economic, political, and market forces.
One of the primary factors behind the peso’s depreciation is the strengthening of the dollar in the international market. Juan Musi, managing partner of Alpha Patrimonial, explained that the dollar’s surge against other currencies has exerted considerable pressure on the peso. “The exchange rate will be under more pressure for the rest of the year. I would not be surprised to see it closer to 19 units, at a level of 18.80 or 18.90, than to see it closer to 17 units,” Musi remarked.
Mexico’s growing inflation is another critical variable impacting the peso. The inflationary pressures within the country have created an uncertain economic environment, contributing to the peso’s volatility. Alejandra Marcos, Director of Analysis at Intercam Bank, emphasized that the first variable of adjustment in an open economy like Mexico’s is the currency. “Mexico has an important position and its currency in terms of operationality, so it responds to a highly uncertain scenario. Volatility in the exchange rate will continue,” Marcos stated.
Political events, both within Mexico and internationally, have also played a significant role in the peso’s depreciation. The announcement by Tesla to reverse its decision to set up a factory in Nuevo León has added to the economic uncertainty. Furthermore, former US President Donald Trump’s recent speech has introduced additional volatility. Trump’s rhetoric and potential policy implications, such as the threat of imposing or increasing tariffs on Chinese and Mexican products, have heightened concerns about the peso’s stability.
Janneth Quiroz, Director of Analysis at Monex Casa de Bolsa, highlighted the impact of the electoral process in Mexico, noting that the post-election uncertainty regarding potential constitutional reforms has contributed to the peso’s depreciation. “The possibility of approving constitutional reforms was put back on the table, with hopes that the new legislature starting on September 1 will open the opportunity for President Andrés Manuel López Obrador’s proposed reforms to be approved,” Quiroz explained.
Looking ahead, experts anticipate continued volatility in the exchange rate. Gabriela Siller, Director of Analysis at Banco Base, pointed out that risk aversion in the Mexican economy has increased due to the possibility of judicial and other reforms being approved by the new legislature. Siller also mentioned that Trump’s comments and actions by companies like Tesla have exacerbated the pressure on the peso. “The risk Trump represents is palpable, as investment projects that were going to arrive in Mexico could be postponed indefinitely,” Siller noted.
Alejandra Marcos expressed optimism that the peso would eventually return to its proper levels once the current volatility subsides. “Markets have shown that they will return to their fundamentals once things calm down,” Marcos said.
In the global context, the Mexican peso’s performance has been mirrored by other currencies. The most appreciated currencies so far in 2024 are the Russian ruble, which gained 5.93%, and the Hong Kong dollar, which appreciated by 0.03%. Conversely, the Brazilian real has depreciated the most against the dollar, losing 16.34%, followed by the Argentine peso with a depreciation of 14.95% and the Turkish lira, which has depreciated by 12.34%, according to data from the Investing portal.
The dollar index, which measures the strength of the dollar against six other currencies, has risen by 3.01% this year. This index comprises the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc.
As various domestic and international factors continue to influence the peso’s value, market experts do not rule out further depreciation. The exchange rate could reach close to 19 pesos per dollar and might even exceed 20 pesos per dollar towards the end of 2024 or the beginning of 2025. The ongoing economic and political developments will undoubtedly play a crucial role in shaping the future trajectory of the Mexican peso.
