Exchange rate at 17.42, its best level since April 2016

The Mexican peso broke the floor of 17.50 units per dollar and closed at its best level since April 2016, after economic data in the United States weakened the greenback. In addition, it was supported by a greater flow of dollars to the country in anticipation that the Bank of Mexico (Banxico) will end its upward cycle this Thursday.

The parity closed at 17.4260 pesos per dollar, an appreciation of 0.87% or 15.37 cents on the day, according to data from Banxico.

“The appreciation is explained by a greater interest on the part of investors in fixed-income instruments denominated in pesos, given the expectation that Banxico will confirm the end of the upward cycle this Thursday,” said Erick Martínez, Exchange Rate Strategist at the English investment bank Barclays.

In the year, the peso appreciates 10.68% against the dollar, being the currency that earns the most of the 20 most traded in the world. It ended 2022 at 19.50 pesos per dollar.

Gabriela Siller, Director of Analysis at Banco Base, explained that the appreciation of the peso in the year is explained by the flows of dollars that arrive in Mexico via exports, remittances and foreign direct investment, in addition to the interest rate differential between Mexico and the United States. Joined.

He added that there is a preference for investing in pesos at the international level when there is no fear and investors leave safe haven assets such as the dollar, and look for assets with higher yields.

“The Mexican peso is the most liquid currency in all of Latin America, which is why it is one of the favorites to invest in,” added the Banco Base analyst.

He said that today, “negative economic data came out in the United States, which suggests that the Federal Reserve (Fed) will no longer continue raising the rate.”

The dollar index -which measures the strength of the US bill against a basket of six currencies- fell 0.25% in the session on Monday, trading at 102.43 units.

Erick Martínez affirmed that once the floor of 17.50 units is broken, the next support to break is 17.00 pesos per dollar, which, he affirmed, “could be broken if the strength of the data in the United States continues.”

“We had an important floor at 17.45, it closed below that support, but it would still have to consolidate at those levels in the next two days,” said Janneth Quiroz, deputy director of Analysis at Monex Casa de Bolsa.

He said that the next level to break is 17.35 units, a level that he does not rule out that it could reach in the following days, because several indicators suggest that the downward trend of the exchange rate will continue.

Jorge Gordillo, director of analysis at CI Banco, affirmed that the next support is 17.30 pesos per dollar, a level that he did not rule out could be broken in the following days. “Levels below 18 units could extend through the summer and into early fall, he said.

fortress could end

Analysts agreed that the peso’s strength could end by the second half of 2023, when the effects of a recession in the United States are felt.

“The strength of the peso is going to be maintained until we see a more significant deterioration in the US labor market, probably in the third quarter of the year,” said Erick Martínez.

He said that Barclays’ estimate for the exchange rate at the end of 2023 is 19 pesos per dollar.

“It is a fact that there will be an economic slowdown in the United States, it will be necessary to see if it is deep; that is, a recession or if it is only a soft landing. Under a recession scenario we could see a depreciation”, commented Janneth Quiroz.

He shared that Monex’s estimate for the exchange rate at the end of 2023 is 20 pesos per dollar.

Gabriela Siller said that the peso could depreciate up to 18.00 units per dollar due to a recession in the United States, to close 2023 in a range between 18.10 and 18.20 pesos per dollar.

sebastian.diaz@eleconomista.mx