Is the Mexican Peso going to depreciate in 2024? 5 reasons for this forecast by Investing.com

Investing.com – Although this Friday, January 5, it has managed to gain ground against the US dollar with the exchange rate crossing the low of 16.90 units for the first time in the year, analysts at Intercam Banco believe That the national currency will improve with a period of instability throughout 2024, leading to a “modest depreciation”.

“We forecast that the peso will depreciate slightly to a level of 17.79 pesos per dollar by 2024, a depreciation of 5.2%,” says Intercam’s team of economic analysts led by Alejandra Marcos.

Forecasts from this financial institution indicate that at the end of the first quarter the exchange rate will be 16.81 units; It will increase to 17.96 in the second quarter. He expects it to rise to 18.10 by the end of the third quarter and fall to 17.79 by the end of the year.

Analysts say this will happen if the exchange rate closes at 16.97 pesos per dollar in 2023, which means a 2.43% increase compared to November 2023 and a 14.89% increase compared to the end of 2022.

“With respect to a basket of emerging currencies, the appreciation of the Mexican peso was recorded as the second largest denomination in relation to the dollar, behind the Colombian peso,” they explain in their analysis.

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What pressure will there be on the Mexican peso?

Intercam’s team of analysts has noted 5 factors that will put upward pressure on the exchange rate, which will result in a depreciation of the Mexican peso:

1. It is quite possible that global monetary policy has concluded the upward cycle, and now they expect cuts or downward adjustments in various economies. For Mexico, they expect at least four non-consecutive cuts this year, starting in the first quarter and ending the year at 10.25%. For the Federal Reserve (Fed), they expect a 100 basis point rate cut to a range of 4.25 to 4.50% by the end of 2024.
2. With rates falling, term premiums may decline and put depreciation pressure on the peso.
3. The current account reflects an economy’s savings minus investment, where a deficit in the current account is caused by a decline in savings or a surge in investment. “We believe that Mexico is in second position due to its location near the coast”; He gestured.
4. There is a risk of decline in prices of raw materials, primarily oil, due to low prospects for global growth and China
5. Elections in Mexico and the United States, which could lead to instability.

“Historically, in the last four presidential elections in Mexico, the exchange rate declined before the election and then increased, although to a lesser extent. In the case of the United States, it is possible to clarify that the one who is today the leader of the Republicans (Trump) is once again in front of disruptive public policies regarding migration, drug trafficking control and even some trade. Generates episodes of instability. Controversy,” he said.

Will the dollar weaken?

Although analysts anticipate an increase in the price of the dollar in the exchange market, they also predict that the cycle of dollar weakness may continue this year due to low rates in the United States in light of planned cuts by the Fed .

“In addition, it is possible that Mexico will begin to receive capital investments, because, despite the Banco’s projected rate cut, funding will remain at high levels,” he said.

They also highlight that, if capital flows into the country pick up, the strength of the Mexican peso could continue to be supported in the coming months.

At around 2:00 p.m., Mexico City time, the exchange rate of the dollar to the Mexican peso was located at 16.88 units, with the local currency recording a daily appreciation of 0.73%, and a gain of 0.38% in the week prior. Year.

If the session ends at this level, the national currency will record its best closing since August 30, 2023, when the exchange rate reached 16.72 pesos per dollar.