Background on the US Dollar’s Decline
The US dollar, as measured by the DXY index, has weakened 9.7% since January 13th due to President Donald Trump’s economic and tariff policies. In the same period, the euro has gained 10.3%, the Swiss franc 10.4%, the Japanese yen 8.3%, the British pound 9.9%, the Canadian dollar 5%, and the Swedish krona has appreciated by a robust 14.4% against the US dollar.
Mexican Peso’s Appreciation
Experts attribute the Mexican peso’s recent 8.81% appreciation this year to reduced trade tensions. The peso has gained ground, nearing 19 units per dollar, as investors monitor trade talks between US and Chinese officials.
On Monday, the Mexican currency opened the week positively, gaining against the dollar. The exchange rate closed at 19.0424 pesos per dollar, a 6.3-centavo or 0.33% increase compared to Friday’s rate of 19.1054 pesos per dollar, according to official data from Banco de México (Banxico). This marked the highest level since August 23, 2024.
Investor Concerns and Market Observations
Analysts from Intercam noted that the peso’s appreciation has raised concerns among investors, questioning future implications amidst the trade war. They highlighted that despite economic growth prospects weakening and tariffs being imposed, the peso has strengthened to 19 per dollar.
Gabriela Siller, director of Analysis at Banco Base, observed a greater appetite for risk with the commencement of US-China trade discussions. She mentioned that, according to US Secretary of Commerce Howard Lutnick, the discussions were “productive”.
Factors Behind Peso’s Strengthening
The Mexican peso’s appreciation is partly due to speculation that the Bank of Mexico will exercise caution in reducing interest rates, given rising inflation. Additionally, Gabriela Siller pointed out potential volatility stemming from disturbances in Los Angeles, California. These protests could intensify anti-immigrant sentiment and lead to more aggressive political stances against Mexico.
Felipe Mendoza, ATFX LATAM’s analyst, commented on the peso’s positive performance, reinforcing its upward trend since August 2024 and the US dollar’s weeks-long decline.
Key Questions and Answers
- Q: Why has the US dollar weakened in the past 21 weeks? A: The decline is primarily due to President Donald Trump’s economic and tariff policies.
- Q: How has the Mexican peso performed in 2024? A: The peso has appreciated by 8.81% this year, benefiting from reduced trade tensions.
- Q: What factors contribute to the Mexican peso’s recent strengthening? A: Speculation of cautious interest rate adjustments by the Bank of Mexico and reduced trade tensions play a role.
- Q: What concerns do investors have regarding the peso’s appreciation? A: Investors are concerned about future implications amidst the trade war, despite weakened economic growth prospects and tariffs.
