Mexico’s currency gained 0.12% vs the U.S. dollar in Thursday trading, extending its rally to 10 straight days after the central bank left interest rates unchanged at its Aug. 6 monetary policy meeting.
The peso closed Thursday at 17.21 to the US dollar and dipped below 17.14 in early trading on Friday, an additional 0.58% gain and its strongest level against the U.S. dollar since Feb. 23.
Forbes México attributed Friday’s early action to a negative U.S. jobs report and said the peso is on pace to appreciate by 1.3% by the end of the week.
Mexico’s currency was also boosted by the central bank’s unanimous decision on Thursday to hold its benchmark rate at 6.50% for a second consecutive meeting, while hinting that rates would remain at the current level for the foreseeable future.
In a statement, Banxico’s board of governors said “headline and core inflation are expected to decline throughout the forecast horizon, albeit more gradually than previously anticipated.”
Headline inflation slowed in July for a fourth consecutive month though the central bank does not expect it to converge to its 3% target until late next year.
In a social media post, Gabriela Siller, director of analysis at Grupo Financerio BASE, said the peso is also appreciating “due to the carry-trade,” a strategy whereby an investor borrows money in a currency with a low interest rate and invests those funds into higher-yielding assets or currencies.
Siller said large global investors are borrowing in the U.S. and Japan, then investing in Mexico, indicating that the peso continues to benefit from a wide interest rate differential (Mexico’s 6.50% policy rate compares favorably to the U.S. Federal Reserve’s 3.50%-3.75% target range).
The newspaper El Economista said the U.S. jobs report (which noted that U.S. nonfarm payrolls fell by 23,000 jobs last month, following a downwardly revised increase of 20,000 jobs the previous month) prompted the market to reduce bets that U.S. interest rates will rise.
Monex Grupo Financiero concurred, saying in a statement that the peso’s advance against the dollar is “driven by the weakness of the dollar and a readjustment of expectations on the direction of the Federal Reserve’s monetary policy” at its next meeting in September.
With reports from El Economista and Forbes México
