The strengthening of the Mexican peso has remained stable compared to other emerging currencies, even before the pandemic, due to factors such as the increase in remittances, the trade surplus in the first months of 2022, the interest rate differential with the Federal Reserve and a stable credit rating outlook for the country.
The best and worst level of the Mexican peso in 2022
The most relevant factor that has supported the national currency has been that interest rates began to rise, since June of last year, with greater aggressiveness and with greater magnitude in emerging countries. Other factors that have helped the exchange rate have to do with the recovery of remittances, in the final part of 2020, all of 2021 and so far this year. Remittances have grown at double digits between 16% and 17%, which helps the country’s external accounts to have some solidity.
So far this year, the worst level the currency has reached is 21.3 units per dollar in March and the best is 19.5 pesos per greenback in May.
“Several of the elements that can be attributed to the strengthening of the national currency have to do with the fact that Banco de México (Banxico) has fairly large and attractive interest rate differentials compared to those of the US. Another element that has been contributing to the strength of the peso against the dollar is the historic inflow of remittances since 2020,” said Jessica Roldán, chief economist at Finamex.
Another of the factors that specialists explained about the stability of the Mexican peso has to do with the trade surplus in 2021 and the beginning of this year, which reflected the strong recovery of the US economy, but at a slower pace than the Mexican one, which generated a greater volume of exports in relation to imports, which derived that the external accounts were relatively in balance.
Alejandro Saldaña, chief economist at Grupo Financiero Ve por Más, explained that although this trade deficit has begun to reverse in recent months, the good dynamism of remittances, an attractive interest rate and a good credit rating on the debt of the federal government could keep the peso a little more resilient than other currencies globally.
The country has a relatively favorable outlook due to its fiscal and monetary policies. In addition, it is recognized that there is less political risk compared to Brazil and Chile. Analysts agreed that these are some of the reasons why national and international investors see Mexican assets as attractive.
Mexican peso compared to other currencies
So far in 2022, the national currency is the fourth most appreciated currency, with 1.81% against the dollar, in the basket of emerging currencies and the fourteenth worldwide. The other currencies that gain value from the US currency are the Russian ruble, with 28.61%; the Brazilian real, with 4.54%, and the Peruvian sol, with 1.29%.
“The Mexican peso is one of the few currencies that have appreciated so far this year against the dollar, along with the Brazilian real. If you turn to see other currencies, even from developed countries, they had very severe falls, such as the euro depreciating 15%, the pound sterling and the Japanese yen. This reflects that monetary policy in emerging countries began to adjust to these fears of inflation more prematurely or earlier than developed countries,” said Alejandro Saldaña, chief economist at Grupo Financiero Ve por Más.
At a global level, the appreciation of currencies such as the Armenian dram stands out, with 17.9%; the Afghani from Afghanistan, with 17.5%; the Uruguayan peso, with 8%; the Guinean franc, with 7.5%; the Dominican peso, with 7.3%, and the Zambian kwacha, with 5.5%.
On the other side of the coin, the most depreciated currencies against the dollar are the Sri Lankan rupee, with 44.3%; the Argentine peso, with 30%; the Turkish lira, with 28.2%; the Hungarian forint, with 23.6%; the Japanese yen, with 20.2%; the pound sterling, with 19.6%; the Polish zloty, with 18.4%, and the euro, with 14.5%.
The currencies that have depreciated in the world have to do with two factors, according to Gabriela Siller, director of economic analysis at Banco Base. The first is related to a divergent monetary policy at the Federal Reserve, as is the case of the Japanese yen, the euro and the pound sterling. The second cause has to do with the geographical approach to the war, in which the single European currency is doubly affected, while the pound is harmed by specific factors that have to do with its announced packages and reforms to increase the fiscal deficit. The Hungarian forint and the Polish zloty are directly related to the war.
