*Updated June 21*
Guadalajara -
Pity the peso. Just three weeks ago the dollar hit a 21 month low against Mexico's currency, trading at a meager 11.98 when markets closed. But over the past week greenbacks have roared back, and today the exchange rate broke 13 pesos for the first time since the end of 2012. Dollar continues downhill slide against peso.
What happened? Economists have an explanation.
Earlier this month Mexico announced that its economy had cooled unexpectedly in the first quarter, suggesting that 2013 growth may fall short of the 4% predicted by president Enrique Peña Nieto in January, and by central bank director Agustín Carstens, who said earlier this year that the peso is "well anchored." Those factors, coupled with April unemployment stats which topped 5%, have contributed to the peso's decline this month.
But the main reason is more subtle, according to experts, and more interesting too. Here's a helpful analysis published in Guadalajara's El Informador a week ago today (English translation follows):
"Una de las principales razones que explican el debilitamiento del crecimiento económico de México es la apreciación del peso a nivel internacional. La imagen en el mundo (como un país estable económica y políticamente) ha provocado que la moneda mexicana comience a fortalecerse con relación al dólar. De alcanzar cerca de 14 pesos en julio del año pasado, cuando el país estaba en periodo electoral, ahora el tipo de cambio se ubica entre 12.24 y 12.31 pesos por dólar, uno de los niveles más bajos en los últimos años. Este fortalecimiento del peso tiene dos caras: hace las exportaciones mexicanas menos competitivas (parte negativa), pero hace que los productos importados sean más baratos, con los consecuentes mejores precios para el consumidor (positivo).
"One of the main reasons (first quarter) economic growth was weaker than expected was the peso's appreciation. (Because of 2013 growth projections), the world viewed Mexico as economically and politically stable, strengthening the peso against the dollar. Last summer, during the presidential campaign, the exchange rate hit 14 pesos to the dollars, but recently it's been . . . at some of the lowest levels in years. The strengthening of the peso was a two sided coin, however. Imported goods became cheaper for Mexican consumers - an obvious positive - but Mexican exports in turn became less competitive in international markets - a clear negative."
The analysis illustrates the circular nature of economic models. An impressive, rising peso, buoyed by high expectations for the current year, caused Mexican products to cost more abroad, making them less attractive to potential purchasers. That hurt sales and demand for domestic production, causing the economy to cool (although certainly not freeze). In predictable reaction world markets suddenly saw the peso as a less solid bet vis-à-vis other national currencies, and its value declined accordingly.
The winners are holders and spenders of U.S. dollars, and the losers are those who must pay with pesos. Arguably the latest exchange rates could jump start Mexico's lagging tourist industry, which received a poor report card this month. But that remains to be seen. Mexico drops another notch in gross tourism receipts.
June 7 - A Brazilian expert contends the U.S. dollar is considerably undervalued in world markets. Its rise against other national currencies is inevitable, he says, which will put more pressure on the peso.
June 20 - The dollar is soaring today, hitting 13.42 pesos at mid-day trading, according to a service MGR relies upon. That is of course the "buy price" - what you might pay if you're holding pesos and want to purchase dollars. If you're moving in the opposite direction, converting dollars into pesos, the exchange will be a little lower, but it should be at least 13. Good news for North American travelers, bad news for Mexican consumers. The PRI government continues to insist all of this is just a minor blip on the economic radar screen.
June 21 - Buyers of dollars paid up to 13.62 pesos today in Mexican banks; 13.50 was the average price in Mérida. Those trading dollars for pesos received an average of 13.30 at the close of markets. Such exchange rates have not been seen for about a year.
July 2, 2013 - Peso, dollar remain volatile; Banixco has $166 billion USD banked abroad
Dec. 31, 2012 - Dollar falls unexpectedly against Mexican peso as U.S. goes over fiscal cliff
May 28 - Mucho trabajo, poco dinero
May 26 - Mexican population is soaring, and most are young
Feb. 20 - World Bank: Mexico has 14th largest global economy, but its citizens rank 81st in food purchasing power
© MGRR 2013. All rights reserved. This article may be cited or briefly quoted with proper attribution or a hyperlink, but not reproduced without permission.
If I remember correctly, it was a short while ago that you were talking up the peso's strength, no?
ReplyDeletehttp://news.yahoo.com/analysis-mexico-peso-peers-over-precipice-much-steeper-101508845.html
No, I wan't talking up the peso's strength - the director of Mexico's central bank, Banixco, was doing so (and still is). That story, quoting Agustín Carstens, is the third link in the post above. I write news stories, like every media source, based upon the events of the day. Don't confuse others' opinions with mine, which often vary considerably. News is news, but opinions, when you read them on MGR, will be clearly labeled as such.
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