Background on the Mexican Economy and the US Dollar
The Mexican peso concluded the week with an appreciation against the US dollar, following two consecutive weeks of decline. This recovery is largely attributed to investor speculation that the Federal Reserve (Fed) might lower interest rates due to the deteriorating economic situation in the United States.
Mexican Peso Performance
According to data from Banco de México, the Mexican peso ended Friday’s session with a 0.58% appreciation, trading at 18.4573 units per dollar. This marks its third consecutive day of gains.
On a weekly basis, the Mexican peso showed an appreciation of 0.66%, rebounding from two weeks of losses against the US dollar. Year-to-date, the peso has appreciated by 11.61%.
The Intercontinental Exchange’s Dollar Index (DXY), which compares the US dollar to six other currencies, fell 0.20% to 99.60 units last week.
Among the most appreciated currencies in the week were the Colombian peso (1.86%), Argentine peso (1.81%), Hungarian forint (1.18%), Brazilian real (0.78%), and Polish zloty (0.61%). Conversely, the South Korean won (-2.22%), New Zealand dollar (-1.65%), Taiwanese dollar (-0.81%), Australian dollar (-0.73%), Swedish krona (-0.39%), and Chilean peso (-0.36%) experienced depreciation.
Expert Analysis
Felipe Mendoza, an analyst at ATFX LATAM’s Mercados Financieros, commented on the peso’s advancement: “The rise occurred amidst a moderate recovery in risk appetite, supported by the slowing inflation in October, Banxico’s balanced tone following its recent rate cut, and the weakening US dollar, as markets adjust expectations on the pace of monetary easing in Mexico and the US.”
Mendoza further noted, “Despite lingering risks in the automotive industry and external demand, the short-term outlook points to a stronger peso, backed by prudent monetary policy and institutional credibility that distinguish Mexico within the emerging market universe.”
US Government Shutdown Impact
Gabriela Siller, director of Analysis at Banco Base, explained the peso’s weekly appreciation: “The market speculates that the Fed might cut interest rates on December 10 due to the deteriorating US economic activity. By week’s end, there is a 70% probability that the Fed will reduce interest rates in December.”
Additionally, Siller mentioned that the 38-day US government shutdown has increasingly negative effects on the American economy. According to the White House Council of Advisors, the shutdown costs approximately $15 billion per week, accumulating to $81.4 billion or 0.28% of the GDP.
The Department of Transportation in the US reduced air traffic by 4% on Friday due to security risks. If the government shutdown persists, air traffic could decrease by 10% within a week. Such a reduction would cancel 800 flights, similar to snowstorm disruptions, but with a more significant long-term impact.
Monex analysts stated that the peso’s rise was driven by Banxico’s cautious stance on upcoming monetary policy decisions and the weakening US dollar.
Key Questions and Answers
- Q: Why did the Mexican peso appreciate against the US dollar this week? A: The Mexican peso gained ground due to investor speculation that the Federal Reserve might lower interest rates, as well as a weakening US dollar and moderate recovery in risk appetite.
- Q: How has the US government shutdown affected the American economy? A: The 38-day shutdown has resulted in approximately $15 billion in weekly costs, accumulating to $81.4 billion or 0.28% of the GDP, negatively impacting the US economy.
- Q: What is the current probability of a Fed interest rate cut in December? A: As of the end of the week, there is a 70% probability that the Federal Reserve will reduce interest rates in December.
