The government of Andrés Manuel López Obrador is coming to an end and the Mexican peso, which was one of his strong points during the second half of his six-year term, has plummeted in recent weeks due to issues such as judicial reform and the upcoming elections in the United States.
The Mexican president received the exchange rate in Mexico at 20.30 pesos per dollar on December 3, 2018. Throughout the first years of his administration, problems arose such as the COVID pandemic, which led the Mexican currency to one of its worst levels, reaching 25.1185 units per greenback March 24, 2020.
However, the currency recovered due to the consequences brought by the COVID pandemic itself, such as the relocation of companies, also known as Nearshoring, which caused Different companies from all over the world will look at the country as an attractive site for installing factories and industrial buildings.
Other factors that were also important for the Mexican peso to remain strong are the increase in the interest rate of the Bank of Mexico (Banxico), which for three years ‘kept pace’ with the Federal Reserve (Fed) of the United States and thereby achieved curb inflation.
The record inflow of remittances into the country, Finances rated as ‘healthy’ by experts and by the Government itself, as well as efforts to counteract inflation such as the Package Against Inflation and Expenditure (PACIC), made the Mexican currency, as of July 2022, begin a positive streak, breaking the floors of the 20, 19, 18 and 17 unitsIt is worth noting that for almost two years he was referred to as ‘superweight’ due to his performance.
However, the results of the elections on June 2 in Mexico made The ‘feat’ of the peso will collapseand in a period of three months it became one of the most depreciated currencies of the year in its quotation against the dollar.
The ‘fall’ of the Mexican peso has its explanations and these are some points that you should know about the trajectory of the Mexican currency:
What was the best month for the Mexican peso against the dollar during AMLO’s government?
The best moment for the Mexican peso against the dollar was between April and May of this yearNow let’s go with the explanation.
He April 8 was the best day for the Mexican peso during López Obrador’s six-year term. That time, the exchange rate closed at 16.3357 units per dollar after a positive streak of appreciation in recent days.
However, the good times for the Mexican currency did not last even a week, and in the following days It again surpassed the ‘ceiling’ of 17 pesos per dollar in that same month.
To put things in context. It was time for electoral campaigns in Mexico and the debates began so that Mexicans could choose whether to vote for Claudia Sheinbaum, from Morena and allies; Xóchitl Gálvez, from the PRI-PAN-PRD alliance, or Jorge Álvarez Máynez from Movimiento Ciudadano.
After the first two debates and the controversy generated during April, May was a more generous month for the Mexican pesoThroughout almost the entire month, except for the 1st and 31st, the exchange rate remained at 16 units.
May 20 was the best day of the month, with a exchange rate of 16.5668 units per dollar.
Why did the Mexican peso become stronger against the dollar during this six-year term?
In previous administrations, it was normal for the peso to depreciate; however, in López Obrador’s administration, the Mexican currency began to gain ground against the dollar for these reasons:
- Nearshoring: La relocation of companies and the arrival of foreign companies to Mexico caused the currency to appreciate in recent years.
- Interest rate differential in Mexico and the United States: Banxico’s decision to align itself for nearly three years with interest rate hikes In a similar way to what the Fed did, it helped the Mexican peso by making the country more attractive for investors and countering inflation, explained Enrique Quintana, vice president and editorial director of The Financier.
- Exports: Mexican goods have reached record levels from 2022 to date, and data indicate that last July A total of 290 thousand 981 million dollars were raisedan increase of 5.9 percent compared to the same period last year, which helps strengthen the currency.
- Remittances: The inflow of money from Mexicans in other countries causes Mexico to receive and circulate dollars, which In turn, it removes pressure against the possible strengthening of the dollar..
What factors affect the Mexican peso currently?
Although most of the indicators that made the peso strong in recent months remain in force, the political situation in the country and the world is responsible for its devaluation against the dollar.
Some of the main factors affecting the Mexican peso are:
- The overrepresentation of Morena and allies in Congress: Since June, when the possibility of the 4T obtaining a qualified majority in the Chamber of Deputies and the Senate arose, the Mexican currency began its decline due to fears about the package of President Lopez Obrador’s reforms.
- Judicial reform: The embassies of the United States and Canada, two of Mexico’s main trading partners, stated that there is concern on the part of investors that the initiative will affect the administration of justice and access to democracy, which has weakened the Mexican pesoThe response from President López Obrador and President-elect Claudia Sheinbaum is that there was no turning back. The judicial reform has already been approved in the Senate and in the state Congresses, so it is awaiting publication in the Official Gazette of the Federation.
- Las US elections:The next presidential elections will be held in the country in November, and Donald Trump, the Republican candidate, said that he will impose tariffs on Mexico of up to 200 percent for cars manufactured in the country. This has put investments such as Tesla on hold. Elon Musk’s company will wait for the results to see if it makes sense to invest in Mexico. Added to this is the negotiation of the T-MEC, which will take place in 2026 and could include more restrictions against Mexico.
- Markets and conflicts in the world: In recent weeks it has been shown that factors such as the fall of the stock markets in Asia and the Increased tensions in the Middle East due to the war between Israel and Hamas, they affect the exchange rate and weaken the peso against the dollar.
How will the Mexican peso fare at the start of Sheinbaum’s government?
Less than a month before Claudia Sheinbaum’s six-year term begins, the Mexican peso has shown signs of volatility. For example, early this morning the Mexican currency reached 20.02 units per dollar.
Enrique Quintana, Vice President and Editorial Director General of El Financiero, listed at least four factors that will define the development of the Mexican peso during the first months of Claudia Sheinbaum’s government, which Starts on Tuesday, October 1st:
- The way in which investors and officials take on the initiatives that are about to be discussed, such as the already approved reform of the Judicial Branch, or the disappearance of self-employed workers and the inclusion of certain social programs in the Constitution. It will depend on whether the weight loses more strength. for political reasons.
- Claudia Sheinbaum’s arrival to the Presidency: From her first speech, investors will be attentive to the statements she offers about What will your management be like? and what tone will be taken regarding its economic policy.
- He economic package for 2025: On November 15, the bill will be submitted, which among other things could include a proposal to reduce the fiscal deficit from 5.9 to 3 percent. This goal is “unsustainable,” according to Quintana, and the pressures on spending due to social programs, unfinished works and pensions, as well as a lower than expected GDP, would make the bill “unconvincing,” which would have a negative impact on the peso.
