US Markets bet on the depreciation of the Mexican peso in the coming weeks

Judging by the bets on the market, the Mexican peso is in for some turbulence. The most recent data on futures contracts denominated in Mexican pesos on the Chicago Mercantile Exchange, the CME, point to a depreciation of the currency against the dollar in the coming weeks. It has been 11 consecutive weeks that bets against the peso have increased, reaching the highest number of downward speculative contracts since December 2021, says analyst Gabriela Siller, from Banco Base.

“The United States economy, at least, is slowing down, if it does not fall into recession, we are already beginning to see export figures showing a drop in July. In addition, remittances have slowed down,” says Siller. “Surely the Mexican peso is going to depreciate”, says Siller. The economist and market strategist expects the Mexican peso, which on Monday traded close to 20.00 pesos per dollar, to be sold between 20.30 and 20.50 pesos per dollar at the end of the year.

The Mexican currency has had a good run this summer. It has appreciated about 5% since hitting the level of 20.94 pesos per dollar in July. The boost, says Siller, has to do with an inflow of Foreign Direct Investment (FDI), which was very strong due to the new global industrial trend known as relocation or nearshoring. Mexico’s proximity to the US and trade tensions between China and the American power have generated incentives for US companies to relocate their factories outside of Asia and opt for Mexico. Data from the Bank of Mexico published on Thursday show that during the first half of the year, Mexico received net foreign investment of 17,425 million dollars (27,512 million inflows and 10,087 million in outflows), which represents a 13% annual drop.

This means that, despite the fact that the Bank of Mexico has raised interest rates, preserving the attractiveness of Mexican assets in global financial markets, there are investors who have opted for other emerging markets. “The high rate is not enough,” says the specialist, “they are afraid of what is going to happen in Mexico.”

“Mexico has a much higher potential to attract resources through nearshoring than what we are seeing,” says Siller, which is also included in the confidence that investors have in the Mexican currency. Insecurity, internal politics, and even the uncertainty generated by the dispute between Mexico and the US over the electricity sector, within the framework of their free trade agreement (TMEC), are limiting investment in the country, says Siller.

Originally published on El País

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