Mexican peso hits strongest level since 2017 after Fed decision

The Mexican peso rose to its strongest level in almost six years after the Federal Reserve (Fed) raised interest rates by a quarter of a percentage point and hinted at the end of its tightening cycle.

The currency rose 0.8% to 17.8315 per dollar on Wednesday, the strongest level since September 2017.

High interest rates, strong remittances, and a relatively calm political landscape have supported the currency. Mexico has also become a destination for factories seeking to relocate closer to the United States, a trend called nearshoring, which is driving investment and demand for the peso.

“The issue of nearshoring and remittances gives a very positive perspective to the pesosaid Alfredo Puig, a trader at Mexican brokerage Vector, in Monterrey, Mexico.

The Federal Reserve of the United States announced this Wednesday a new rise in interest rates, of 0.25 points, which places rates in a range of between 5% and 5.25%.

The increase, the tenth in the last year, is in line with what was predicted by analysts and comes in a context of high banking instability. In the statement, the Fed’s Federal Open Market Committee (FOMC) did not clarify whether this could be the last hike before taking a break due to instability in the banking system.

“In assessing the appropriate monetary policy stance, the committee will continue to monitor the implications of incoming data for the economic outlook.”, the statement stated.

Thus, the FOMC will take into account “the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial factors”.

The Fed is “prepared” to adjust the monetary policy stance “as appropriate” Yeah “risks arise that could prevent the achievement of objectives” to bring inflation to 2%, added the statement.

In the statement, the regulator made a brief reference to the banking situation and assured that “the US banking system is strong and resilient”.

The Fed explained that, after the ten consecutive rate hikes since March 2022, economic activity expanded “at a moderate pace in the first quarter”. The creation of jobshas been strong in recent months and the unemployment rate has remained low“, while “inflation remains high“, accurate.

With information from Bloomberg and EFE