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Thursday, September 28, 2023

An $18 peso by the year’s end, bankers predict

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The exchange is part of the expat conversation more than ever, at least in recent history. 

But experts predict the dollar will get stronger by the end of the year, landing somewhere between the current dregs and the former, more favorable exchange rate.

The Mexican peso this week reached its strongest level since 2015, thanks in part to high local interest rates, rising exports and record remittances.

One greenback bought 16.96 pesos on Thursday, down from 17.04, after a huge drop in value following US inflation reports. On Thursday, the dollar rose slightly to 16.91. The Canadian dollar, while on a separate path, is also at a low point in Mexico, valued at 12.88 today compared with 17.71 in April 2020.

Few analysts expect the peso to be this strong all year, the Wall Street Journal reports. A Bank of Mexico poll projects the peso to end December at 18.33 to the dollar. That’s still a healthy “super peso” — expats living in Mexico on income accumulated on the US dollar had become accustomed to an exchange rate mas o menos 20 to the dollar. 

So the dollar just isn’t stretching as far as it once was, causing foreign residents on a budget to rethink personal spending habits.

But Bank of America sees the peso as overvalued and vulnerable to a selloff.

“While the peso could remain strong in the short term on the back of U.S. resilience, we believe all risks are to the downside,” Bank of America Global Research told investors in June.

In Mexico, the peso’s strength is a win-win. It has helped curtail inflation and bolstered the image of President Andrés Manuel López Obrador, who has compared its 20% appreciation since he took office in December 2018 with hefty losses suffered under his six predecessors.

“This hasn’t happened in decades,” he said. 

Mexico’s economic fundamentals are strong compared with its peers, and it has a relatively low debt load. 

AMLO has discouraged private investment in favor of nationalizing energy, airports and railroads. His administration has maintained fiscal discipline, refusing to rack up more government debt during the pandemic. 

As well, remittances by Mexicans working in the U.S. surpassed an annual US$60 billion for the first time in April.

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