Is the party over?: Mexican peso could erase solid gains in 2023

The weight Mexicanwhich is poised to wrap up one of its best years in a decade, could see its gains wipe out in 2023 amid an imminent end to the central bank’s rate hike cycle and fears of a US recession. USA.

The currency, which last month reached levels prior to the health emergency due to the coronavirus pandemic, accumulated a gain of more than 5% in the year, becoming together with the Brazilian real one of the best performing global currencies against the dollar. .

But perhaps the end would be near given that the markets anticipate that important flows of money that have arrived for months attracted by the restrictive stance of the central bank, will begin to leave despite the rate differential between Mexico and other countries such as the United States, which could soon start to narrow down

It is expected that in the coming months, Banco de México, which has its key rate at a record high of 10.5%, will reach the end of its upward cycle, while the Federal Reserve will continue tightening its monetary policy for a while longer, which would bring adverse effects. for the weight.

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“The phenomenon that has benefited it this year would dissipate a bit: the ‘carry trade'”, said James Salazar, deputy director of analysis at CI Banco, referring to the strategy of taking advantage of the gap between the yields offered by Mexico and other economies to amass profits.

The strength of the currency, whose soundness is boasted by President Andrés Manuel López Obrador, has also been supported by a steady inflow of remittances, as well as strong export growth and strong foreign direct investment (FDI) inflows. .

Remittance shipments, mainly from the United States, aimed to end a record year with almost 48.350 million dollars accumulated until October, very close to the historical figure of just over 51.550 million dollars reached in all of 2021.

Exports also outlined an unprecedented 2022 with an accumulated up to October close to 480,000 million dollars, while FDI reached almost 32,150 million dollars between January and September, exceeding the amount of the entire previous year.

But the risks of a recession in the United States, the Latin American nation’s biggest business partner, due to growing signs that the world’s largest economy has been losing steam, threaten to reverse the outlook, experts say.

Additionally, Mexico is trying to overcome a series of trade differences with Canada and the United States over its energy policy, which has been branded as nationalist by its two partners in the North American business agreement, TMEC, considered key for local exports.

“The perception of risk could rise due to the consultation process within the framework of the TMEC that could lead to the imposition of compensatory measures against Mexico”said Banco Base.

DEPRECIATION AT SIGHT

For now, in the Chicago Mercantile Exchange (CME), considered a thermometer of market sentiment, investors dedicated to making speculative bets are beginning to lean towards a depreciation of the Mexican currency.

Their positions, which had been held for eight straight weeks in anticipation of a further strengthening of the peso, abruptly changed ground last week to reach 54,929 positions against the currency, a level not seen since late last year.

Accordingly, among economic analysts there is also less optimism about the course of the peso, which oscillated on Thursday around 19.35 per dollar, even so, they say, it would remain behaving relatively stable.

A recent survey by the central bank showed that it would close next year at 20.80 per dollar, a level that, although it implies a loss of 7% compared to its current levels, would still be far from the record above 25 units at which it reached to oscillate during the pandemic.

Source: Reuters