The Mexican peso demonstrated remarkable strength against the U.S. dollar this Tuesday. The local currency advanced in a day of erratic movements.
It withstood concerns about the latest escalation in the Russia-Ukraine conflict. The peso also remained attentive to Donald Trump’s cabinet developments.
The exchange rate closed at 20.1136 pesos per dollar, according to the Bank of Mexico. This marked a 1.31% gain or 26.75 cents from Friday’s official close of 20.3811 pesos.
The peso has now appreciated for five consecutive trading sessions since November 12. This streak represents a total gain of 2.69% or 55.66 cents.
The Dollar Index, which compares the greenback to six reference currencies, dipped marginally by 0.07% to 106.20 points. Traders are closely monitoring the formation of President-elect Donald Trump’s cabinet.
Particular attention is on the Treasury Secretary position. Trump may choose Howard Lutnick to lead the Commerce Department.
Lutnick, an executive at Wall Street firm Cantor Fitzgerald, supports Trump’s vision of job recovery in U.S. manufacturing.
Felipe Mendoza, a Financial Markets Analyst at ATFX, attributes the peso’s appreciation to Federal Reserve speculation. The market is divided between expectations of a 25 basis point cut or unchanged rates in December.
Mexico’s Economic Outlook
Last week, the Bank of Mexico cut its reference rate from 10.50% to 10.25%. This move aimed to stimulate the national economy. However, Moody’s downgraded Mexico’s sovereign debt outlook from “stable” to “negative”.
The agency cited concerns about a weakening judicial system and rising government debt. This outlook has created uncertainty among investors.
They are cautiously observing the country’s economic and fiscal policies. Gabriela Siller, Director of Analysis at Banco Base, suggests the dollar could continue strengthening.
Trump’s potential policies of import tariffs and mass deportations are inflationary. These actions would raise import and labor costs.
Siller outlines three scenarios for the exchange rate heading into 2025. The optimistic scenario sees Trump focusing on the trade war with China.
He would pressure Mexico on trade, migration, and security issues through threats. Other policies would remain moderate in his first year.
In this least likely scenario, the exchange rate could reach 20.15 pesos per dollar by late 2024. It might then drop to 18.50 in 2025.
However, the central scenario involves continued threats of tariffs against Mexico without actual implementation. U.S. foreign policy towards Mexico becomes a central priority.
This scenario could see the exchange rate at 20.35 pesos per dollar in late 2024. It might then decrease to 19.50 in 2025. The worst-case scenario involves Trump maintaining a threatening tone towards Mexico.
He might announce tariffs and promise increases to curb migration flows. In this most probable scenario, the exchange rate could hit 20.70 pesos per dollar in late 2024.
It could then rise to 23 pesos in 2025. These projections highlight the complex interplay of international relations and economic factors shaping Mexico’s currency outlook.
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