The Mexican peso broke the 17-unit-per-dollar floor and was trading at around 16.98 per U.S. dollar in wholesale transactions early Friday before inching up to just over the 17 mark near midday.
For two days, the peso had flirted with dipping below 17, a milestone that reinforces the strength of the local currency in international financial markets while also attracting investor attention.
The exchange rate Friday was 16.9965 pesos per dollar before 8 a.m. Mexico City time. According to the financial portal Bloomberg, the rate represents an appreciation of 0.20% for the peso, equivalent to a drop of 3.39 cents for the U.S. dollar.
The last time the intraday exchange rate fell below 17 was on June 3, 2024, the day after the elections in which President Claudia Sheinbaum and the Morena party won in a landslide.
By midday Friday, the exchange rate had risen to 17.0389 to the dollar.
The Mexican currency closed on Thursday at 17.0431 pesos per “spot dollar,” appreciating by 0.13% compared to Wednesday’s close. Before Friday’s opening, the peso had gained ground against the dollar in four consecutive days — strengthening by 0.9% — and had appreciated by 5.2% on the year.
According to data from Mexico’s central bank (Banco de México or Banxico), the exchange rate fluctuated between a maximum of 17.07 and a minimum of 17.03 in Thursday’s interbank market.
“The return of the super peso is due to the global weakness of the dollar amid increased uncertainty in the U.S. economy,” Banamex analyst Paulina Anciola told El Universal newspaper.
Other issues impacting the exchange rate include the latest U.S. consumer inflation report (indicating inflation had been momentarily contained), a global environment of lower volatility and investor expectations about the direction of monetary policy of the U.S. Federal Reserve and Banxico.
Anciola also said the peso’s behavior is due to a greater global appetite for emerging market assets, as well as to the attractiveness of the long-term interest rate differential favoring Mexico. The differential is roughly 450 basis points in Mexico’s favor compared with the United States.
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“It would seem that the foreign exchange market has already internalized a significant part of the domestic uncertainty, both related to adjustments to the sovereign rating outlook, as well as in the trade arena in the face of the scenario of annual reviews of the U.S.-Mexico-Canada trade agreement (USMCA) and so far there have been no episodes of high volatility,” he said.
The private sector consensus forecasts a wholesale exchange rate of 17.90 pesos to the dollar by the end of this year, according to the latest Citigroup survey of 35 banks, brokerage firms and analysis groups.
However, there is evidence that the peso is overvalued. In the most recent MND Peso Index™, which compares prices of a basket of goods and services in Mexico and Dallas, Texas, the peso was found to be overvalued against the dollar by 2.4% in early August.
With reports from Informador, La Jornada and El Universal
