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Strong dollar, weak peso, attracts tourists

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The peso is in a free fall, with mixed results for the Mexican economy. Photo: Getty
The peso is in a free fall, with mixed results for the Mexican economy. Photo: Getty

A U.S. dollar yesterday bought 16.56 pesos. The peso has fallen steadily against the strengthening dollar, falling from about 13 pesos per dollar last July.

“The peso is not weaker. The American dollar though is really strong,” Mexican analyst Rafael Carrero told Anadolu Agency. He said that the currency should continue to slide unless the U.S. Federal Reserve decides against what is expected to be an interest rake hike.  Analysts polled by Reuters said they expected the U.S. central bank to raise interest rates in September.

This makes life harder for local businesses, but a low peso always benefits the tourism industry. Exports in Mexico are now more costly, but vacations are much more affordable for Americans now that the dollar buys more in Mexico.

“Devaluations always have a double effect. For example, they increase tourism and boost trade, but they hit the country’s domestic companies hard,” Carrero, director of currency trading at the Actinver Group, told EFE.

A researcher at the Faculty of Economics at the Autonomous University of Yucatan—UADY—Jorge Luis Canche Escamilla said current conditions are very favorable for the state, where the economy is based largely on tourism.

Despite the falling peso, consumer prices rose less than expected in the first half of July. The National Institute of Statistics and Geography said Thursday that an annual inflation rate increase of 2.76 percent in the first half of July was the lowest rate since 1989, the year when Mexico began tracking inflation fluctuations.

Mexico’s Central Bank Governor Agustin Carstens said on Thursday that conditions should improve for the peso once market turbulence over possible rate increases by the U.S. Federal Reserve bank has receded.

“This will even take us to a scenario that in the end should favor the peso because the Federal Reserve would be tightening its monetary policy due to the belief that the U.S. economic recovery is strengthening,” he told Mexican radio.

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