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An overview of the Super Peso against the dollar in early 2023

By: Dr. Alejandro Diaz-Bautista, Economist and Researcher.

The behavior of the peso against the dollar in the first days of 2023 is a recovery of the value of the Mexican currency against the United States dollar. The Mexican super peso registered its best performance in recent months against the U.S. dollar.

But this strength is due more to the United States economy than Mexico’s in 2022 and 2023. The United States economy is walking at a level of low growth and the increases that the Federal Reserve has made to the interest rate to combat inflation have weakened the dollar, not only against the peso but also against other emerging currencies in the world.

The peso will remain strong against the dollar because the interest rate in Mexico is 600 points above that of the United States.

Mexico is an investment-grade country with the largest differential (with respect) to the Fed, that is, those that pay the highest interest rate.

The peso has an advantage in the geopolitical environment that has triggered nearshoring and the 10th Summit of North American Leaders showed the economic attractiveness of Mexico.

One of the advantages of a strong peso or a weak dollar is that product imports are cheaper for Mexican businessmen. The downside is the higher cost of Mexican exports. Remittances can have an economic impact. In November 2022, the average remittance was $393. With the exchange rate of that time, Mexican families received a total of approximately 7,622 pesos. In January 2023, the same remittance shipment will be approximately 7,417 pesos.

It is estimated that with the U.S. economic slowdown, there will be less employment and Mexican migrants will send fewer remittances. In the November data, remittances fell 10.43% at a monthly rate.

In recent days there has been much talk in the exchange and financial markets and by economists about the “super peso”, since the Mexican currency has gained strength against the dollar, by breaking the barrier of 19 pesos, and placing the dollar, the U.S. currency below that amount.

The peso is one of my favorite currencies. The currency has become the third most traded currency among emerging countries, with a market share of 7.8%, behind China, which has 36.1%, and the Indian rupee, with 8.4%, according to data from the Bank of International Payments.

The appetite of national and international investors for risky assets, given the possibility that the United States Federal Reserve slows down its rate hike rate, boosted the peso, which is at its best level in three years.

Regarding the macroeconomic data of the United States, the exchange market has reacted to the publication of economic data and monetary policy decisions in the United States, since some figures point to an economic slowdown, which has weakened the dollar due to the appetite for risky assets.

The peso with its high liquidity, full convertibility, and the existence of a wide range of instruments for risk coverage are key characteristics that allow it broader access and lower costs in global markets.

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