Mexico: Mexican peso weakens slightly but performs better than regional peers
October 13, 2014
Latin American currencies slid more rapidly in September, weighed down by a number of geopolitical and global economic factors and the Mexican peso (MXN) was not the exception. On 30 September, the peso traded at 13.43 per USD, which was 2.6% weaker than on the same day last month. In annual terms, the MXN was also 2.6% lower.
Despite the loss in the value of the Mexican currency, the peso performed far better than its regional peers. The Mexican economy is closely linked to the U.S. economy and the recently approved structural reforms are expected to attract meaningful capital inflows. The slight depreciation mainly reflected that investors’ attention is shifting toward how the U.S. monetary policy will affect emerging economies and their currencies. The Federal Reserve will end its quantitative easing (QE) program this month and is expected to begin hiking interest rates in June 2015.
The Mexican Central Bank (Banxico) has maintained a dovish monetary policy stance in order to support economic growth, while inflation remains relatively contained. Most analysts agree that a monetary policy shift in Mexico is unlikely, even if the Mexican peso breaks the 14.00 MXN per USD barrier in the short-term. In fact, monetary authorities expect that the ongoing recovery in the U.S. economy, along with a currency depreciation will boost exports, thereby benefiting economic growth.
Author: Ricardo Aceves, Senior Economist