The Mexican peso closed the year 2023 with a record appreciation of almost 13% (down 17 units) against the dollar, making it one of the best performing emerging currencies in the world, and which led to the currency being described as ‘ I became known. ‘Supervet’. However, Everything indicates that 2024 will not be such a cool year for the currency,
At the moment, the peso is already playing with levels of 17.2 units per greenback, a level not seen since the first half of December 2022, and accumulating a weekly depreciation of 1.4% or 24 cents. If it holds the current position for the rest of the day, the supervet will have its worst performing week since the beginning of last October, when its value dropped 4.4% in wholesale operations as reported by Bloomberg.
The keys that will mark the entire 2014 for the Mexican peso
There are two key factors that explain the depreciation of the peso and the rise of the dollar, and both will be constantly present in the minds of investors during 2024, so it will be important to keep an eye on them: The electoral scenario with the United States A Donald Trump’s return to the White House possible and possible rate cut Of the Federal Reserve (Fed).
“The impact of the possibility of Trump becoming president causes the exchange rate to decline because Mr. Trump has said that, if he wins (the next US election), he will impose a series of tariffs on many countries in the world, including those Including a free trade agreement,” explained Carlos Serrano, chief economist at BBVA Mexico.
Indeed, after former President Trump (2017-2021) won the primary elections in Iowa, increasing the likelihood that he would be nominated as the presidential candidate by the Republican Party, the peso weakened.
Regarding the second factor, possible rate cuts in the United States, the more rate cuts and the faster and stronger they are, the more upward impulse the peso will receive. Conversely, if the US central bank cuts rates lower than expected, everything indicates that the dollar will strengthen, putting pressure on the Mexican currency.
All eyes are on the Fed
For now, waiting for those decisions to come (or not), investors are playing with expectations. Positive economic indicators in the United States have dampened expectations of a rate cut, boosting the dollar. And this is what is happening right now.
This Wednesday, markets had to analyze a retail sales report that suggested consumers are still spending and so inflation will not decline so sharply. Rate cut bets softened and almost all Latin American currencies were punished.
In any case, we must not forget that key data and investors will watch most closely inflation In the United States, expectations of rate cuts are also diminishing. A week ago, investors had to digest that inflation rose more than expected in December, raising doubts about a Fed rate cut and sending Wall Street reeling.
All this makes it difficult to predict what will happen to the superweights during this new year of 2024. Although there are some analysts who dare to issue their forecasts, such as the chief economist of Grupo Financiero Banorte, Alejandro Padilla, who considered that the peso-dollar exchange rate could be maintained. “The levels we are seeing are relatively stable, simply because there are inflows, because we have attractive interest rates.”
And he predicted that “in the second half of 2024 we could see an adjustment, but quite moderate, also thinking about the volatility associated with the elections in the United States on November 5.”
The article has been prepared with partial information from EFE and Reuters.
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