Foreign Currency

Mexican peso strongest against US dollar since 2015. Here’s why.

USD/MXN nears new lows under 17.000

The Mexican peso has seen a significant rally against the US dollar, plummeting from over 24 pesos per 1 USD to under a 17-to-1 exchange rate. This marks a potential entry into new territory for the USD/MXN pair, showcasing Mexico’s strengthening economy relative to the United States. Such movements are critical for traders to monitor, as they reflect broader economic trends and policy impacts on currency values.

Mexican interest rates 5% higher than US rates

The Bank of Mexico’s aggressive rate hikes from 4% in 2021 to 11% in 2023, compared to the US Federal Reserve’s increase from 0% to 5.5% during the same period, have widened the interest rate differential between Mexico and the US. This significant rate difference plays a key role in influencing the USD/MXN exchange rate, making Mexican assets more attractive to yield-seeking investors and supporting the peso’s strength.

Mexico profiting from US growth with ‘nearshoring’

As US businesses shift manufacturing from China to Mexico to capitalize on closer geographic proximity and reduced logistics costs – a trend known as ‘nearshoring’, Mexico’s economy benefits from increased manufacturing capacity and job creation. This movement is bolstered by US GDP growth, further supporting the peso’s performance as the country leverages economic expansions north of its border.

Peso gains on strong US employment

Strong employment data in the US, partly fueled by Mexican migrant labor, has had a ripple effect on Mexico’s economy, as it is the world’s second-highest receiver of remittances. This means a percentage of earned US dollars are being sent back to relatives in Mexico, creating natural buyers of the Mexican peso. This trend plays a crucial role in bolstering the Mexican economy, reflecting the interconnectedness of the neighboring economies.

Where is USD/MXN going?

With historical fluctuations ranging from as low as 13.0000 to as high as 24.0000 in the past decade, the USD/MXN pair’s future movements remain a point of speculation for traders. Market participants will closely watch for economic indicators, policy changes, and global trade dynamics that could influence the direction of this currency pair, keeping an eye on both short-term fluctuations and longer-term trends.

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