Mexico: Mexican peso recovers some ground lost after credit rating upgrade
February 16, 2014
On 3 February, the Mexican peso (MXN) traded at 13.54 per USD, which was 3.3% weaker than it was on the same day the previous month. Although the monthly fall in the MXN against the USD was not as significant as for other currencies in the region, the peso reached the lowest level since July 2012.
The weakening of the Mexican peso along with a host of emerging market currencies mainly reflected investor jitters regarding the U.S. Federal Reserve's decision to continue tapering its bond purchases and the deceleration in the Chinese economy.
More recently, however, the MXN recovered some of the ground it had lost. Ratings agency Moody's upgraded Mexico's credit rating from Baa1 to A3 with a stable outlook on 5 February. The agency cited the structural reforms that President Enrique Pena Nieto pushed forward in 2013 as the main reason behind its decision. Moody's added that the reforms approved in Mexico last year, "will strengthen the country's potential growth prospects and fiscal fundamentals."
Mexico is the second economy in Latin America after Chile to earn the desired "A" grade sovereign rating. Meanwhile, analysts expect that credit agencies Standard & Poor's and Fitch Ratings will eventually follow suit and upgrade Mexico's sovereign ratings by the end of this year or beginning of 2015.
LatinFocus Consensus Forecast panelists expect the peso to end 2014 at 12.73 MXN per USD. For 2015, panelists expect the currency to remain virtually stable and end the year at 12.77 MXN per USD.
Author: Ricardo Aceves, Senior Economist