Puerto Vallarta, Mexico – The Mexican peso experienced its largest weekly depreciation since early November, driven by low liquidity during the December holiday season and a strengthening U.S. dollar as markets anticipate a more cautious stance from the Federal Reserve regarding interest rate cuts in 2025.
According to the Bank of Mexico (Banxico), the peso closed at 20.3192 per dollar on Friday, marking a 1.42% depreciation for the week. This represents the most significant weekly loss since the week ending November 1, when the peso fell by 1.54%. On Friday alone, the peso weakened by 0.55%.
The Intercontinental Exchange’s Dollar Index, which measures the greenback against six major global currencies, rose by 0.35% to 108 units, reinforcing the dollar’s dominance.
Market Caution and Political Uncertainty
Jorge Gordillo, director of Analysis at CiBanco, attributed the peso’s performance to increased caution among traders in a market characterized by low trading volume.
“The aversion shown by traders at the end of the week stemmed from heightened uncertainty surrounding Donald Trump’s potential return to the White House,” Gordillo said. He emphasized that concerns over tariffs, inflation, and the terminal level of the Fed’s interest rate contributed to profit-taking among investors.
“It is expected that on January 20, the president-elect will commence his term with aggressive economic and immigration policies,” he added.
Felipe Mendoza, Financial Markets Analyst at ATFX Latam, echoed these sentiments, noting that the peso’s depreciation reflects a market closely monitoring local and global economic signals as Mexico approaches the end of the year.
Mendoza highlighted the importance of tracking U.S. economic indicators and any statements that could hint at forthcoming monetary policy adjustments.
Speculative Peso Contracts on the Rise
Despite the peso’s depreciation, speculative contracts favoring the Mexican currency on the Chicago Mercantile Exchange (CME) increased for the third consecutive week.
As of December 20, the net long position for the peso reached 14,600 contracts, reflecting an 84.81% rise compared to the previous week. This upward trend indicates that some investors continue to bet on the peso’s resilience in the longer term.
Gabriela Siller, director of Analysis at Banco Base, observed that liquidity in the foreign exchange market declined throughout the week, a typical occurrence in the lead-up to the Christmas and New Year holidays.
“Lower liquidity reduces market efficiency, often resulting in volatile trading sessions even in the absence of significant events,” Siller said.
Peso Among Most Depreciated Emerging Currencies
The peso concluded the week as the fifth most depreciated currency against the dollar, outpaced only by the Russian ruble, South African rand, South Korean won, and Brazilian real.
Leading the declines, the ruble depreciated by 2.67%, followed by the rand at 2.08%, the won at 1.93%, and the real at 1.83%. In contrast, the Malaysian ringgit appreciated by 0.81%, the Hungarian forint by 0.79%, and the Swedish krona by 0.27%.
Siller attributed the broader weakness among emerging market currencies to global geopolitical risks and economic uncertainty.
“The crash of an Azerbaijani passenger plane on December 25, coupled with Israel’s military actions against Houthi rebels in Yemen, reminded markets that tensions in the region persist,” she noted.
Additionally, speculation surrounding Japan’s monetary policy contributed to market jitters.
“The Bank of Japan’s forward guidance indicated the potential for further rate hikes in 2025, driven by rising wages and expected domestic consumption growth,” Siller said. “Meanwhile, anticipated economic policies under a new Trump administration could bolster the dollar, reinforcing upward pressure on U.S. interest rates.”
Outlook for the Peso
Analysts suggest the peso’s outlook will depend on evolving economic conditions in the United States, particularly regarding inflation, interest rates, and trade policies. As the new year approaches, market participants are expected to remain cautious, closely monitoring policy developments and geopolitical events that could shape currency dynamics.
