Peso, the most appreciated currency against the dollar in 2022

The Mexican peso is preparing to become the most appreciated currency against the dollar in 2022, above the Brazilian real, the Peruvian sol and the Russian ruble. This would mark one of his best years in a decade.

However, analysts project that the party for Mexico’s currency could end in 2023 and see its gains vanish, given an imminent end to the central bank’s rate hike cycle and fears of a US recession.

The currency, which last month reached levels prior to the health emergency due to the coronavirus pandemic, accumulates a gain of 5.37% in the year, becoming, together with the Brazilian real, one of the best performing global currencies against the dollar.

On Thursday, the peso advanced slightly 0.07%, equivalent to 1.4 cents, closing at levels of 19.4065 units per dollar compared to 19.4205 in the previous session, data from the Bank of Mexico (Banxico) show.

The local currency gained ground as investors continued to weigh the impact of China’s rapid relaxation of its strict rules to control the spread of Covid-19 and a rise in new infections.

But perhaps the end would be near because the markets anticipate that significant flows of money that have arrived for months attracted by the restrictive stance of the central bank will begin to leave despite the rate differential between Mexico and other countries such as the United States, which could begin to widen. narrow down

It is expected that in the coming months Banco de México, which has its key rate at a maximum of 10.5%, will reach the end of its upward cycle, while the Federal Reserve will continue tightening its monetary policy for some time, which would be adverse for the peso. .

“The phenomenon that has benefited it this year would dissipate a bit: the carry trade,” said James Salazar, deputy director of analysis at CI Banco, referring to the strategy of taking advantage of the gap between the yields offered by Mexico and other economies to amass profits.

The currency’s strength has also been supported by a steady inflow of remittances, as well as strong export growth and strong foreign direct investment (FDI) inflows.

Remittance shipments, mainly from the United States, aimed to end a record year with almost 48.350 million dollars accumulated until October, very close to the historical figure of just over 51.550 million dollars reached in all of 2021.

Exports also outlined an unprecedented 2022 with an accumulated up to October close to 480,000 million dollars, while FDI reached almost 32,150 million dollars between January and September, exceeding the amount of the entire previous year.

But the risks of a recession in the United States, the Latin American nation’s biggest business partner, due to growing signs that the world’s largest economy has been losing steam, threaten to reverse the outlook, experts say.

Additionally, Mexico is trying to overcome a series of trade differences with Canada and the United States over its energy policy, which has been branded as nationalist by its two partners in the North American business agreement, TMEC, considered key for local exports.

“The perception of risk could rise due to the consultation process within the framework of the TMEC that could lead to the imposition of compensatory measures against Mexico,” Banco Base said.

sight depreciation

For now, in the Chicago Mercantile Exchange (CME), considered a thermometer of market sentiment, investors dedicated to making speculative bets are beginning to lean towards a depreciation of the Mexican currency.

Their positions, which had been held for eight weeks in a row anticipating a further strengthening of the peso, changed last week to 54,929 positions against the peso, a level not seen since the end of 2021.

A recent central bank survey showed that the peso would close next year at 20.80 per dollar, a level that would be far from the record above 25 units at which it fluctuated during the pandemic.