By Noe Torres
MEXICO CITY (Reuters) – Mexico’s peso currency flexed its muscle on Monday to reach its highest value against the U.S. dollar in seven years, following nearly two years of interest rate hikes aimed at taming inflation that has seen consumer prices edge down.
Some analysts chalk up the peso’s latest gains, however, as mostly the flip side of a weakening greenback.
The peso gained 0.95% on Monday to trade at 17.42 pesos per dollar, its strongest level since May 2016.
Over the last few years, the Mexican currency has mostly hovered around 20 pesos per dollar, but over the past year it holds the distinction of the currency that has gained the most against the U.S. dollar, or up nearly 11%.
President Andres Manuel Lopez Obrador repeatedly touts the peso’s strength as evidence of sound macroeconomic policies, especially his administration’s budget austerity and pledge to avoid taking on new debt.
But Franklin Templeton portfolio manager Luis Gonzali cited other factors as being behind the peso’s latest surge, including the sliding value of the greenback, most recently on fears of a potential default if U.S. lawmakers do not raise the country’s debt limit in order to cover already-approved spending.
“A big part of (the peso’s strength) is the dollar’s weakness,” he said, adding that the Mexican economy further benefits from growing flows of fixed investments into the country.
But Mexico City-based Gonzali also acknowledged Mexico’s healthier finances, relative to other emerging markets where currencies have not benefited as much as the peso due in part to more public expenditures, higher debt or looser monetary policies.
“Mexico has shown itself to be the least ugly person at the party,” quipped Gonzali, helping it attract more dance partners.
On Thursday, the Bank of Mexico is seen maintaining its benchmark interest rate at 11.25%, halting a cycle of hikes that began in June 2021, according to a Reuters poll of analysts.
The Mexican Peso has risen to a 7-year record high against the US Dollar, reaching a rate of 19.271 pesos per Dollar. This impressive result was reached on Wednesday and surpasses the previous all-time high, which was recorded in August of 2008.
The sudden surge in Peso value has been welcomed by several analysts, who see it as a sign of further stability for Mexico’s economy. Many also attribute the increase to the recent strengthening of economic ties between the US and Mexico.
The sudden rise in value of the Peso can be seen as part of a long-term trend, with the Mexican currency having steadily risen from a rate of 22.879 Pesos per Dollar in August of 2012. The past six years have seen the gradual appreciation of the Peso, making it both stronger and more versatile when making international payments.
This rise in the Peso could also be seen as a sign of increasing confidence in Mexico’s economy, with investors putting increasing amounts of money into the nation’s economic system. Recent years have seen increased levels of foreign direct investment, with more and more companies based in the US and elsewhere expanding their presence into Mexico.
For Mexican citizens, the increase in the value of the Peso can lead to increased buying power when converting their currency for US Dollars. This may even serve to improve the country’s already-vibrant tourism industry, with more travelers likely to flock to Mexico for its attractive costs.
Overall, the surge in the Peso’s value is a positive sign for both the Mexican economy and its citizens. With a stronger Peso comes greater stability and opportunities.