Puerto Vallarta, Mexico – Mexico’s once-dominant currency, the superpeso, has been knocked off its strong position, losing ground against the U.S. dollar for two consecutive days. Following the approval of a contentious judicial reform in the Chamber of Deputies, the peso has become the weakest performing currency of the year, surpassing the Argentine peso in this unfortunate ranking.
As of this morning, the Mexican peso reached 20.15 units per U.S. dollar, marking its worst level in two years, according to Bloomberg’s wholesale operations data. The peso’s slide is significant as it had been hailed as one of the most successful currencies globally in 2022 and 2023. However, since the start of 2024, it has depreciated by 18.9%, or 3.20 units, reflecting the currency’s substantial decline.
Currency Rankings Shake-Up
The Mexican peso now sits at the bottom of a list that tracks the performance of the world’s 32 major currencies. Following closely are the Argentine peso, Brazilian real, and Turkish lira. On the opposite end of the spectrum, the Malaysian ringgit, South African rand, British pound, and Polish zloty are the top-performing currencies of the year.
This dramatic shift in the peso’s fortunes is attributed to several factors. A weak employment report from the ADP Research Institute in the United States, coupled with the yen’s significant gains and the political uncertainties surrounding Mexico’s judicial reform, have placed immense pressure on the peso.
Judicial Reform Adds to Peso’s Volatility
According to Janneth Quiroz, Director of Economic, Foreign Exchange, and Stock Market Analysis at Monex, the recent volatility in the exchange rate is primarily due to the market’s reaction to the approval of the judicial reform in the Chamber of Deputies. This reform, which has sparked debate within Mexico, could have far-reaching implications for the country’s political and economic stability, leading to uncertainty among investors.
Adding to the peso’s woes, Banorte analysts warned that the currency may face further depreciation, potentially reaching a peak of 20.50 units per dollar later this week. The depreciation comes at a time when many other global currencies have strengthened against the dollar. Meanwhile, at the retail level, the dollar opened for sale at 20.50 pesos at CitiBanamex counters, signaling a challenging environment for Mexican consumers and businesses reliant on international trade.
U.S. Economic Data Fuels Peso’s Decline
The Mexican peso’s slide was also exacerbated by a disappointing employment report from U.S.-based ADP, which revealed the creation of only 99,000 jobs in August, far below market expectations. Additionally, a downward revision in July’s employment figures raised concerns about the strength of the U.S. economy, fueling speculation that the Federal Reserve may cut its main interest rate at its upcoming meeting on September 18.
The Federal Reserve’s interest rate, which has been held steady at a range of 5.25% to 5.50% since July 2023, represents the highest rate since 2001. While a potential rate cut could relieve some pressure on the peso, uncertainty remains about the central bank’s next move, leaving Mexico’s currency vulnerable to further fluctuations.
Economic Outlook
Mexico’s economic outlook is uncertain as it navigates the dual challenges of global economic trends and domestic political shifts. The weakening peso could impact inflation and consumer purchasing power, particularly in a country that relies heavily on imported goods priced in dollars. With the possibility of continued peso depreciation, Mexico’s central bank, Banxico, may face tough decisions regarding interest rates and other monetary policies to stabilize the currency.
In the meantime, economists and analysts will be closely monitoring developments in Mexico’s political landscape, especially the judicial reform process, and any new data from the U.S. Federal Reserve. Should the Mexican peso continue its downward trajectory, further intervention from Banxico may be required to prevent deeper economic repercussions.
Puerto Vallarta, Mexico - Mexico’s once-dominant currency, the superpeso, has been knocked off its strong position, losing ground against the U.S. dollar for two consecutive days. Following the approval of a contentious judicial reform in the Chamber of Deputies, the peso has become the weakest performing currency of the year, surpassing the Argentine peso in this unfortunate ranking.
