Mexico: Peso recoups some its steep coronavirus-induced losses in June
Over the past month, the Mexican peso recovered some of the heavy losses suffered in March when it plunged to an all-time low amid the collapse in international oil prices and the fast-spreading coronavirus took its toll. Emerging market currencies in general have rallied recently in large part due to investors shifting back to risky assets after March’s sell-off. On 12 June, the peso ended at 22.23 per USD, marking a 9.8% appreciation from the same day in May. That said, the currency was down 13.7% year-on-year and has lost 14.8% of its value year-to-date.
A weaker U.S. dollar and improving global market sentiment have helped the peso gain ground against the greenback in recent weeks. In particular, fiscal stimulus enacted by governments and massive amounts of liquidity injected by central banks globally to counter the financial and economic fallout from the pandemic, coupled with the release of unexpectedly-positive employment data in the U.S., have helped reignite investors’ appetite for risky assets after the coronavirus-induced sell-off in March. In addition, with the latest Fed policy-setting meeting on 10 June signaling that rates will remain near zero for the foreseeable future and Mexico’s still-sizeable interest rate differential, despite the numerous rate cuts by Banxico, have made the peso more attractive. Lastly, recovering oil prices since late April and hopes for an economic turnaround as more countries ease their virus-provoked lockdowns further supported the MXN.
Looking ahead, the peso is expected to remain broadly stable by year-end and thus unlikely to return to its pre-coronavirus sell-off trading level. The harsh economic blow dealt by Covid-19; prospects for a relatively weak recovery amid the bleak global backdrop and timid fiscal response by the government; and the currency’s vulnerability to sudden shifts in market sentiment are all seen weighing on the MXN going forward.