By Noe Torres
MEXICO CITY (Reuters) – The Mexican peso could remain the top performer among major global currencies in the coming weeks, despite Mexico’s central bank choosing to halt a nearly two-year rate-hike cycle, analysts said.
The currency traded at 17.40 per dollar this week, its strongest in seven years, and experts believe the exchange rate could soon fall below 17 pesos per dollar, a level not seen since 2015.
“It is very likely that this strengthening of the currency will continue in the short term,” said James Salazar, deputy director of economic analysis at local firm CI Banco, adding the differential rate is still very attractive and favors the peso.
The Mexican peso has gained nearly 10% so far this year, driven mainly by the dollar’s decline and money entering the country since the central bank started hiking interest rates in June 2021.
Banxico, as Mexico’s central bank is known, put the breaks on rate hikes on Thursday, but warned its key rate could remain at its current all-time high of 11.25% – more than double that of the U.S. Federal Reserve – for an extended time.
Among the factors boosting the peso, analysts cite a steady inflow of remittances, strong export growth and a private investment boost from nearshoring, the trend of moving factories to a nearby country where production is cheaper.
In the Chicago Mercantile Exchange, seen as a market bellwether, speculators on different types of assets have been increasingly betting that the Mexican currency will keep appreciating.
These positions, anticipating further strengthening of the peso since mid-March, reached 70,007 contracts in favor of the currency last week, a level not seen since March 2020.
Nonetheless, U.S. economic uncertainties such as the risks of a recession, banking system health and the danger that the federal government defaults on its debt obligations, threaten to cloud the outlook for the peso in the medium term.
Considering these factors, Mexican economists expect the peso to weaken to 19.13 by year-end, a survey by the central bank showed, while a poll of Citibanamex experts estimated the figure at 19.20.
(Reporting by Noé Torres; Additional reporting by Raul Cortes and Sarah Morland; Editing by Richard Chang)
