A person exchanges dollars for Mexican pesos. FcoJavierZeaLara (Getty Images/iStockphoto)
The predictions came true. The Federal Reserve has decided to pause the increase in its interest rate after 10 consecutive increases and leave it in a range of 5% to 5.25%. However, this the US central bank does not rule out a new hike in rates at the end of this year, a forecast that has impacted the exchange rate of the Mexican peso that weakened its stance against the dollar minutes after the Fed's decision was announced. The exchange rate of the Mexican peso has gone from 17.11 (its best level since December 2015) to 17.13 units per dollar.
The specter of a possible economic recession in the United States continues to play in favor of the Mexican currency. In the last five months, the Mexican peso has accumulated an appreciation in that period of 9.32%, equivalent to 1.82 pesos. "The Mexican peso had not appreciated so much in a five-month period since December 2020, when it accumulated an appreciation of 10.6%," Banco Base writes.
The Fed's decision to stop the rise in its rates to try to ward off a possible economic recession makes the US currency less attractive compared to other emerging currencies such as Mexico. Analysts also agree that unlike other emerging economies, Mexico has an attractive interest rate, at 11.25%, has shown solid fundamentals, as well as a promising horizon hand in hand with nearshoring or relocation of companies.
Gabriela Siller, Director of Analysis at Banco Base, explains that the level of the interest rate in Mexico, at 11.25%, is one of the highest in the world for countries with investment grade, a situation that has privileged the carry trade effect over other economies, both emerging and among the most developed countries.
Who wins with a 'superweight'? A strong exchange rate helps to lower the prices of imported goods and thereby contain domestic inflation. However, in the other trench it puts the export and tourism sector on the ropes and reduces the purchasing power of those who receive remittances. "Current peso levels may cause a slowdown in consumption and lower growth in Mexican exports," Siller said.
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