Super peso: Two factors that explain the winning trend of the Mexican currency

He super weight Mexican, the name adopted by the Mexican peso due to its performance in recent years, opened March with the same winning trend with which it began 2023. According to information from Investing.com, from January to February, the Mexican currency accumulates an appreciation of 6% in the year, making this time elapsed the best first two months for the currency since 2012.

The Mexican peso starts the month of March strong, accumulating an appreciation of 6% so far in 2023, becoming the best January-February period since 2012 (when it registered an advance of 8%).

Along these lines, the Mexican currency closed February with an appreciation of 2.73%, according to figures available in real time at Investing.com Mexico.

It was in February of this year that the Mexican peso registered a maximum of 19.22 pesos per dollar and a minimum of 18.28, the latter being a level not seen since April 19, 2018.

What factors explain the winning trend?

According to the information exposed by the specialists to Investing.com, there are two factors that determined the winning trend of the Mexican peso so far this year:

1. The increases in interest rates by the Bank of Mexico, as well as the expectations that the increases will continue to control inflation is one of the factors that has benefited the super peso. It is important to remember that in its most recent monetary policy decision, Banxico surprised with an increase of 50 base points, contrary to the 25 that was expected in the market. Thus, the maximum cost of money in Mexico reached the historic level of 11%. According to analyst forecasts, a terminal rate of 11.50% is expected at the end of this restrictive cycle.
2. The rise in exports from Mexico have also favored the greater circulation of dollars. In January, exports increased by 6.06%, due to the growth of the manufacturing sector of 7.09%. “From a fundamental perspective, the appreciation of the peso is supported by the flow of foreign currency to Mexico, by way of exports, remittances, foreign direct investment and portfolio investment,” said Gabriela Siller, director of Economic and Financial Analysis at Banco Base for Investing.com. It is important to note that several indicators were published during the month of February that suggest sustained economic growth in the US economy, which favors the appreciation of the peso, added the director.

What are the disadvantages of super weight?

The rise of the super peso brings with it a series of disadvantages that could end up turning its hegemony into a financial and economic crisis for Mexico.

According to specialists, in the trade balance, the appreciation of the Mexican peso is not favorable since it tends to generate fewer exports, which affects the performance of the economic indicator.

“The appreciation (of the Mexican peso) can make national productivity lose competitiveness,” pointed out the stock market analyst Victor Carmona to Bloomberg Online.

Meanwhile, he pointed out that another disadvantage of the price of the super peso is that it becomes cheaper to import due to the strength of the Mexican peso against the dollar, and with this, foreign products become cheaper, causing a loss of competitiveness on the part of local products.

Another negative factor is the exchange difference for foreign tourism and even with remittances, since fewer pesos are delivered per dollar.