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Peso weakens again after slight recovery against the US dollar

The Mexican peso is once again trading at well above 18 to the US dollar.

After depreciating to a six-month low of 18.37 against the dollar in early October, the Mexican peso made up some lost ground last week, closing at below 18 to the greenback on three consecutive days between Tuesday and Thursday, according to Bloomberg data.

Mexican pesos
The Mexican peso is trading again above 18 to the US dollar, losing 2.3% against the greenback between Monday and Wednesday. (Cuartoscuro)

The USD:MXN exchange rate went above 18 last Friday, but at the close of markets on Monday, the peso was back to 17.88. It’s been downhill for the Mexican currency since then.

It closed at 18.01 to the dollar on Tuesday, and dipped to as low as 18.30 on Wednesday, a depreciation of 2.3% compared to its closing position on Monday.

At 2:30 p.m. Wednesday, the peso was trading at 18.25 to the dollar, a depreciation of 8.9% compared to its strongest 2023 position of 16.62 to the greenback in late July. However, the currency is almost 7% stronger than it was at the start of the year when the USD:MXN rate was about 19.5.

Janneth Quiroz, head of analysis at the Monex financial group, said on the X social media site on Wednesday morning that the peso had weakened due to increased risk aversion amid an increase in geopolitical tensions in the Middle East.

She also noted that the DXY index, which measures the value of the US dollar against a basket of six foreign currencies, had opened stronger.

In a separate post on Wednesday morning, Quiroz said that the Mexican peso was in first place for losses against the greenback among emerging market currencies.

One factor that has helped the peso appreciate against the US dollar in 2023 is the significant difference between the Bank of Mexico’s key interest rate – currently set at a record-high 11.25% – and that of the United States Federal Reserve, which has been set at a 5.25-5.5% range since July.

Bloomberg Línea, a Latin America-based affiliate of Bloomberg Media, reported Wednesday that despite a softening of the discourse of U.S. central bank officials, the possibility of the Fed raising rates in December “has not closed.”

US Federal Reserve building
The U.S. Federal Reserve may increase rates to curb inflation. (Shutterstock)

As a result the peso could depreciate further, the news website said.

Bloomberg reported that “policymakers have said additional hikes are possible because of the U.S. economy’s resilience, as shown in stronger-than-expected retail sales and factory-output figures Tuesday, which could keep inflation elevated.”

However, Fed Governor Chris Waller – described by Bloomberg as “among the more hawkish” Fed officials – said Wednesday that the U.S. central bank can wait and gather more data before deciding whether rates need to be raised.

The Fed, which will make monetary policy decisions in November and December, said in its Beige Book report on Wednesday that “prices continued to increase at a modest pace overall.” Annual headline inflation was 3.7% in the U.S. last month, well above the Fed’s 2% target.

The Bank of Mexico has indicated that it intends to maintain its 11.25% rate for an “extended period.”

Inflation in Mexico has declined every month since February, but remains above the central bank’s 3% target. The annual headline rate was 4.45% in September.

Mexico News Daily 

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