The line of growth of the Mexican currency, which has skyrocketed its value against the dollar, has led to the coining of the term “superpeso”.
“This trend and very rapid escalation that the Mexican peso has had, comes from the year 2022,” said Manuel Ramos, economist and wealth manager.
Several factors have contributed to this strengthening that have been added to “this increase that the superweight brings since the previous year,” added Ramos.
The strengthening of the Mexican peso has been “driven by a greater flow of dollars into the country (to Mexico),” Ramos said.
This entry of dollars into the country is due to the “growth of exports and the remittances that we Mexicans have and that we send to the country, and the interest rates,” said Ramos.
Investor attraction
One of the factors that has most attracted foreign investment is “that the Mexican government, through the Central Bank, has high interest rates that work like a magnet for all investors,” he added.
In other words, investors are being attracted by Mexican treasury bonds that have better yields than those of the United States.
“One of the magnets that the Mexican government has is that it is paying a rate of return or interest rates on its treasury notes that is practically double what the bonds are paying here in the United States. That is, above 10%,” Ramos explained.
So, when looking at foreign investment opportunities, “obviously you’re going to buy those Treasury bonds rather than buy the US bonds that are practically at 50% interest,” he explained.
For Ramos, “the attractiveness of the liquidity of the Mexican peso for investors, I believe is the trigger for this super peso to continue recovering against a currency like the dollar.”
An emerging currency
The Mexican peso is part of a group of emerging currencies that has positioned itself in the economic context of Latin America.
According to Ramos, the Mexican peso “has gone through a good cycle, while the dollar has shown signs of weakness.” This is why “the Mexican peso in Latin America has become a haven for many investors,” he added.
In addition, one of the factors that has strengthened this currency has been “the investment of capital from the United States and China in a tighter monetary policy. What does this mean? That Mexico has become a springboard for many companies that have been settling in and that the famous nearshoring it helps the country to capture more dollars, more remittances from Mexicans and at the same time that also strengthens the country’s finances,” said Ramos.
He nearshoring, or relocation, is a practice of companies that transfer their business operations to nearby countries, at the borders, or closer to the recipient of the product. Hundreds of companies have located operations and manufacturing centers in Mexican cities on the border with the United States.
Winners and losers for the superweight
While for some the strengthening of the Mexican peso is an advantage, for others it is a problem.
For those who receive remittances, the money that arrives in dollars yields less. “There really is no impact for the Americans who are sending remittances, rather the impact is on Mexican families, who receive these dollars and who obviously are not going to buy more pesos for those dollars, but less pesos are bought,” Ramos said. .
On the other hand, the rise in the price of the Mexican peso may have repercussions for the country’s economy, and may have a negative effect on exports.
“Another issue that must be taken into consideration is that if the peso continues to strengthen, it will also affect the Mexican macroeconomy. What I mean by this? Exports will be less, they will have less capacity to capture income due to the issue of imports and exports,” said Ramos.
In other words, if the costs for Mexican companies’ exports exceed their ability to capture income, businessmen will be forced to reassess their operations to avoid losses.
Will the Mexican peso continue to rise?
The economist Ramos assures that “currently the Mexican peso is in one of the strongest positions in its technical levels.”
The behavior of the peso in the coming months will be dictated by internal factors such as the management of interest rates in Mexico, as well as the economic slowdown or possible recession in the United States.
