MEXICO CITY.— The peso managed to start the week in gains despite the fact that yesterday’s session began reflecting risk aversion due to the electoral process in Mexico and other parts of the world, pushing the currency to reach a maximum of 18.65 units per dollar.
Data reported by the Bank of Mexico revealed that the exchange rate stood at 18.2930 pesos per greenback, which represented an appreciation of 0.38% or 6.98 cents, compared to the closing figure from last Friday.
At bank counters, the Mexican currency closed at 18.72 pesos per dollar, according to information from Citibanamex.
Following Claudia Sheinbaum’s press conference yesterday followingnoon, the peso-dollar exchange rate in international markets reached 18.58 units.
“The peso remains vulnerable to the flows of the previous week. At the beginning of this week, it reached prices of up to 18.66. With the volatility, it might operate in a wide range between 17.80 and 19.40,” said Juan Carlos Cruz Tapia, professor at the EBC.
Markets are concerned regarding a reform that would modify the justice system, which among other changes seeks to reduce the number of magistrates and proposes the election of judges, which would weaken one of the checks and balances of the executive branch.
Who wins and loses
The peso went from being among the best-performing currencies of the year to being one of the most depreciated, due to an increase in risk aversion regarding Mexico, reaching its lowest level once morest the dollar in more than a year.
This behavior of the parity gives the impression of being something very negative, however, not everyone loses with the depreciation of the currency once morest the dollar.
In general terms, it is thought that one of the big winners of the exchange rate depreciation would be the export sector, companies whose sales go to foreign markets.
This is because a weak peso makes the prices of goods leaving Mexico relatively cheaper, making these products more attractive and increasing their demand globally.
Another segment of the population that will benefit are people who receive remittances from abroad, because they will get more pesos for the same amount of dollars. For example, in mid-May, for every 100 dollars, they received almost 1,699 pesos; currently, they get 1,884, that is, 185 pesos more.
Among the beneficiaries is the tourism sector, which is so important for many entities in the country. A strong peso discourages certain groups of foreigners from coming to Mexico; it is easier for them to be interested in visiting the country with a cheap peso.
On the contrary, among those most affected by the depreciation of the national currency are the government and companies with liabilities in dollars, through the increase in the financial cost of their external debt.
A weak exchange rate increases the amount you pay in pesos for that commitment, which is also affected by the high interest rates prevailing in the market.
Another of those affected are importers. Mexico is also an important power in this area, the country acquires many inputs and capital goods from abroad that are used to produce products that end up being exported.
The average consumer is also indirectly affected by the rise in the price of imported or generic goods, some of whose main components are of foreign origin. Expenses are also increased for people who are planning to travel abroad or who have a debt in dollars.
Traditionally, it is assumed that a currency depreciation is negative, but taking into account all of the above, it is not so easy to evaluate whether the final balance of having a weak peso is, in general terms, detrimental to the country or not.
We might be inclined to assume that the sum is negative, but ultimately there are winners and losers from a weak exchange rate.
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2024-07-11 06:41:35