The Mexican peso is off to a bad start in a year that could have many bumps in the road

The Mexican peso ended 2023 with a record high against the dollar of almost 13% (less than 17 units), making it one of the best-performing emerging currencies in the world, which has led to the currency being known as “overweight.” However, Everything indicates that 2024 will not be a quiet year for the currency.

Currently, the peso is already at a level of 17.2 units per dollar, a level not seen since the first half of December 2022, and is seeing a weekly decline of 1.4% or 24 cents. If it maintains its current position for the rest of the day, the superweight will have its worst-performing week since the beginning of last October, when it fell 4.4% in wholesale trades reported by Bloomberg.

The keys that will mark the entire year of 2014 for the Mexican peso

There are two main factors explaining the devaluation of the peso and the rise of the dollar, both of which will be constantly present in investors' minds throughout 2024, so they will be important to monitor: the country's electoral panorama. United States with A The possibility of Donald Trump returning to the White House And it is possible Interest rate cuts From the Federal Reserve (Federal Reserve).

“The impact of the prospect of a Trump presidency depresses the exchange rate because Mr. Trump said that if he wins (the upcoming US elections), he will impose a series of tariffs on several countries in the world, including those with a free trade agreement.” explained Chief Economist at BBVA Mexico, Carlos Serrano.

In fact, after former President Trump (2017-2021) He will win the Iowa primaryWhich increases the possibility of his nomination for the presidency by the Republican Party, and the weakness of the peso.

Regarding the second factor, potential interest rate cuts in the US, the more interest rate cuts and the faster and stronger they are, the greater the bullish impetus the peso will have. On the contrary, if the US central bank cuts interest rates less than expected, everything indicates that the dollar will rise, putting downward pressure on the Mexican currency.

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All eyes on the Fed

Right now, while waiting for those decisions to arrive (or not), investors are playing with expectations. Positive economic indicators in the United States weaken hopes for lower interest rates, pushing the dollar higher. This is exactly what is happening now.

On Wednesday, markets had to process a retail sales report that indicated consumers were still spending and therefore inflation would not fall as quickly. Bets on interest rate cuts fell and almost all Latin American currencies were punished.

However, we must not forget that the key data that investors will look closely at is Economic inflation In the United States, which also tempered expectations of interest rate cuts. A week ago, investors had to digest that inflation in December rose more than expected, raising doubts about the Federal Reserve's interest rate cuts and sending Wall Street tumbling.

All this makes it difficult to predict what will happen to the superweight during this new year 2024. Although there are some analysts who dare to make their predictions, such as the chief economist of Grupo Financiero Banorte, Alejandro Padilla, who considered it possible to maintain the peso exchange rate against… Dollar “It is relatively stable at the levels we are observing, simply because there are flows, and because we have an attractive interest rate.”

He predicted that “in the second half of 2024 we can see an adjustment, but quite moderate, while also thinking about the fluctuations associated with the elections in the United States on November 5.”

The article was prepared with partial information from EFE and Reuters.

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