Mexican peso depreciates in 2024, is the superpeso in danger? by Investing.com

Investing.com – After a historic and unprecedented appreciation in 2023, economists expect it to be on track to depreciate in 2024: In January alone, the local currency recorded a monthly loss of 1.41% against the US dollar.

In the January edition of the survey on expectations of private sector economic experts published by the Bank of Mexico (Banxico), analysts unanimously expect the exchange rate to close this year at the level of 18.50 pesos per dollar. Although this would represent a decline of 9.1% compared to the end of 2023, the current perspective is slightly better than that reported in the December survey, when it was estimated that the dollar would be worth 18.53 pesos at the end of 2024.

Investors will be paying close attention to the monetary policy activities of both the United States Federal Reserve (Fed) and the Bank of Mexico (Banxico) this year. Currently, forecasts indicate that Mexican authorities will make the first cut in interest rates in March before the Fed, as its Chairman Jerome Powell denied yesterday that this could happen in the first quarter, raising the stakes on a May decision. Moving towards.

The adjustment of expectations has also been reflected in the exchange market. Yesterday, the local currency closed with a decline of 0.42% after Powell’s press conference, but today it returned to the path of gains with an intraday appreciation of 0.8%, as the dollar was quoted at 17.07 units at noon this Thursday, February 1. it was done. , This, after it was announced that initial applications for unemployment aid last week saw an increase of 9,000 to 224,000 applications, more than the expected 212,000. This could increase expectations of a cooling in the labor market, which could encourage the Fed not to postpone rate cuts for long.

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Beyond these expectations regarding monetary policy, favorable economic forecasts for both Mexico and the United States open a scenario of strength for the local currency.

“The most important thing for the Mexican peso in 2024, as has been the case in the last two years, is not the issue of Bank of Mexico rates; This is the first issue of remittances and the second of foreign direct investment. These flows explain about 70% of the total dynamics of the Mexican peso in recent years, which is why it is so strong,” explained Enrique Covarrubias, chief economist and analysis director at Grupo Financiero Actinvar.

This morning, Bancsico delivered encouraging figures: Mexico received a record $63,313 million in remittances (MDD) in 2023, representing an increase of 7.6%. The amount coming from this continues to increase for a decade.

But it also includes inflow of resources from abroad through foreign investment, foreign direct investment (FDI) in variable income. near shoreForeign exchange inflows from international tourism, non-oil balances and the holding of government bonds in the hands of foreigners.

According to calculations by the United Nations Conference on Trade and Development (UNCTAD), in 2023, Mexico will receive $43.9 billion in FDI, the highest figure since 2013.

“The advent of new foreign direct inclusions that have been announced, that have been committed and that will continue in 2024 and 2025, explains why we see the peso still quite strong,” Covarrubias said.

From Actinver, the exchange rate forecast for the end of 2024 is located at 18.00 pesos, which is 50 cents lower than the consensus estimate of analysts consulted by Banxico, so the depreciation of the local currency will be limited to 6.2%. Under this assumption.

He also estimates that Mexico’s economy will show growth of 2.4% this year, while the United States’ economy will rebound by 1.4%, which favors the solid position of the Mexican peso.

“I believe we have the potential to continue to review growth expectations,” Covarrubias said.

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