Background on the Mexican Peso and its Recent Performance
The Mexican peso has shown significant strength against the US dollar, closing at 17.2420 on Tuesday, marking its best close since April 25, 2024, when it was valued at 17.2136 pesos per dollar. This appreciation comes as the US dollar weakens against most currencies, with investors turning to precious metals for safety.
Factors Driving the Peso’s Appreciation
- Lower demand for the dollar as a safe-haven asset: Investors are seeking alternatives to the US dollar, reducing its appeal and contributing to its depreciation.
- Market expectations of less restrictive US monetary policy: Analysts predict that the Federal Reserve may adopt a less stringent monetary policy, which could lead to further dollar sales and increased investment in currencies with better relative performance, such as the Mexican peso.
- Carry trade attractiveness: The Mexican peso benefits from the carry trade, as investors borrow in lower-yielding currencies (like the US dollar) and invest in higher-yielding ones, like the Mexican peso.
Expert Opinions on the Peso’s Performance
Diego Albuja, an analyst at ATFX LATAM, attributes the peso’s appreciation to reduced demand for the dollar as a safe-haven asset and market expectations of less restrictive US monetary policy. He suggests that the exchange rate may continue to face downward pressure in the short term, potentially reaching levels near 17.20 pesos per dollar, benefiting those with dollar-denominated obligations but limiting the attractiveness of holding long positions in the dollar against the peso.
Gabriela Siller, director of Analysis at Banco Base, notes that the peso’s appreciation is due to the weakening US dollar according to its weighted index. She points out that the dollar reached its lowest point in the session since February 23, 2022, following comments by Donald Trump downplaying the dollar’s decline. Siller expects the dollar to remain under pressure in upcoming sessions due to eroded confidence and credibility in the US economy resulting from current administration policies.
US Dollar at Its Weakest Level Since 2022
The Dollar Index (DXY), which measures the value of the US dollar against a basket of six major currencies, hit its lowest level in nearly three years. The index closed at 96.22 points, the weakest since February 23, 2022, when it was at 96.19 points, driven by diversification of investments away from the US dollar.
Analyst Perspectives on the Dollar’s Weakness
- Possible coordinated intervention between Tokyo and Washington: Analysts from Monex Casa de Bolsa suggest that coordinated intervention between Tokyo and Washington pushed close carry trade positions and pressured the dollar through massive bond sales.
- Uncertainty surrounding US fiscal sustainability: The approaching January 30 deadline to avoid a government shutdown has further eroded confidence in the US dollar, according to Monex.
Latin American Currency Performance in 2026
In the context of Latin American currencies, the Brazilian real has appreciated by 5.7%, the Chilean peso by 4.8%, and the Mexican peso by 4.25%. This positive trend underscores the allure of carry trade in an environment where the CME market anticipates two 25 basis point rate cuts by the Fed in 2026, according to Monex.
Key Questions and Answers
- What is driving the Mexican peso’s appreciation against the US dollar? The weakening US dollar, reduced demand for it as a safe-haven asset, and market expectations of less restrictive US monetary policy are contributing to the Mexican peso’s appreciation.
- How is the US dollar performing against other major currencies? The US dollar has weakened against most major currencies, reaching its lowest level in nearly three years according to the Dollar Index.
- What are analysts predicting for the US dollar in the future? Analysts expect the US dollar to remain under pressure due to eroded confidence and credibility in the US economy resulting from current administration policies.
