Peso has its best year since 2012

The Mexican peso not only ended 2022 as the second most appreciated currency against the dollar (only behind the Brazilian real), but also had its best annual performance in the last decade, with an advantage of 4.87% against its US counterpart.

The peso-dollar exchange rate ended the year at a level of 19.5089 pesos per dollar, compared to 20.5075 units per greenback at the end of 2021. This represented a recovery of almost 1 peso or 99.86 cents, according to data from the Bank of Mexico (Banxico).

In this way, the Mexican currency registered its biggest gain against the US currency since 2012, when it ended with an appreciation of 7.89 percent.

It was also its first gain since 2019, a year before the health crisis caused by the Covid-19 pandemic, and it remained the second strongest currency in the world, below the Brazilian real, which appreciated 5.12 percent.

“The peso-dollar exchange rate closed in second position among the currencies that presented the highest gains against the dollar in 2022, thus breaking a two-year streak of consecutive depreciation. It is noteworthy that the peso remained strong despite the fact that for a good part of the second semester the dollar presented almost uninterrupted increases due to the aggressive increases in the interest rate by the Federal Reserve”, commented Janneth Quiroz, deputy director of Analysis at Monex Casa de Bag.

The peso had its best session of 2022 on December 1, when it closed at 19.1656 units per dollar and touched its best level of the year on November 29, at 19.0401 units, a level not seen since February 25, 2020. The maximum price it was 21.4676, on March 8, the day it also had its highest closing level (20.3327).

Since October 21, it has remained below 20 units per dollar.

The three best months of 2022 for the peso were May (+3.77%), March (+2.93%), and November (+2.74%). In contrast, April (-2.81%), June (-2.35%) and July (-1.24%) were the ones with the greatest depreciation.

dollar wins

The Dollar Index, which measures the strength of the greenback against a basket of six strong currencies, ended the year at 103.49 points, a gain of 7.8% compared to the 95.97 units at which it began in January 2022.

The good performance of the peso is backed by various reasons: the differential between the interest rates of the Bank of Mexico (Banxico) and the Federal Reserve (Fed); the record entry of remittances, the increase in exports and the reception of foreign direct investment, specialists agreed.

For James Salazar, deputy director of Analysis at CIBanco, the central element is the carry trade (when investors finance themselves with a cheap rate and invest in a country that offers a higher interest rate).

“Banxico began raising its rate in 2021, before the Fed did, which made it more attractive for investors to be in Mexico than in the United States, so it remained for much of 2022 because in general terms the The dollar did very well against most currencies,” he explained.

According to Janneth Quiroz, in addition to the 600 base point differential between the interests of Mexico and the United States, the peso gained strength due to non-oil exports that grew 18 percent. In second place were remittances, which rebounded close to 15%, and in third place was foreign direct investment, with an increase of 13%, in the third quarter.

The peso also benefited from oil exports and tourism, which grew close to 77% in 2022.

However, the “party” for the Mexican peso could end in 2023, as specialists anticipate that it will depreciate. “The expectation we have is of depreciation, which will close this year, which begins at levels of 20.70 and 20.80 pesos per dollar, although it is not a very strong drop, it is little more than one peso considering the end of 2022,” said James Salazar.

The analyst added that the reason for estimating these levels for the peso is that the element that played in its favor (the interest rate differential between Mexico and the United States) will begin to decrease.

The consensus of analysts who participated in the Citibanamex survey estimates that the exchange rate will close 2023 at 20.80 pesos per dollar, this is a depreciation of 6.66%, considering the end of 2022.

judith.santiago@eleconomista.mx