Mexican Peso Exchange Rate Forecast 2024: Analysts Predict Decline Against Dollar Amid Interest Rate Differentials and Elections

2024-03-16 02:10:00

Despite the fact that the Mexican peso has been trading below 17 units per dollar for ten consecutive sessions, driven by the wide differential between the interest rates of Mexico and the United States, as well as by a greater flow of currencies that reach the country, the expectation of different analysts agrees that the exchange rate will eventually show a decline once morest the dollar.

One of the main effects is the probability that the interest rate differential will be reduced, given the prospects that the Bank of Mexico (Banxico) will cut its interest rates at its meeting next week, which contrasts with the idea that the Federal Reserve (Fed) keeps its reference interest rate unchanged.

In this regard, Carlos Hermosillo, an independent analyst, explained that, “the market has already discounted a cut by Banxico, but there might still be surprises in the Fed’s statements. However, with the appreciation of these days I do believe that the Next week we should see a weight a little above these levels.”

Added to this is the fact that this year presidential elections will be held in both Mexico and the United States. Gabriela Siller, director of economic analysis at Banco Base, commented that, “in an election year, and especially when there are elections in the United States, the peso depreciates, but if the peso were following that average election trend, right now we would be seeing levels close to 17.20 units”.

He added that it would be something unprecedented for the Mexican peso to end up with gains under this scenario. “Let us remember that a good part of the exchange rate movements respond to speculation, which might lead to profit-taking and that would cause a cut in their advances,” he said. In his forecasts he highlighted that under an optimistic scenario the peso would depreciate to the level of 17.45, while in a not so optimistic scenario it would take it towards 18 pesos per dollar.

Likewise, Citibanamex analysts agreed that a depreciation is in sight for the Mexican currency, which we might observe at the end of this month, as the effects of a lower interest rate differential in the United States materialize. “In addition, other factors persist that would lead to the peso gradually depreciating during the rest of the year,” they noted.

Likewise, CIBanco’s base scenario is that the exchange rate is around 16.86 units in the third month of 2024 and they assure that it will continue to be highly influenced in the short term by the behavior of economic activity and the reaction of central banks in regarding their interest rate movement decisions.

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