Mexican Peso's 2024 Journey

In 2024, the Mexican peso experienced mixed performance against the US dollar, characterized by initial strength followed by significant volatility. By Dec. 20, the peso had depreciated by 18% against the dollar, a sharp contrast to its 13% appreciation in 2023, according to Bloomberg.

The first five months of 2024 saw the peso trading robustly, starting at MX$16.90 and fluctuating between MX$16.32 and MX$17.30. During this period, it was the second most appreciated currency among 16 major global currencies, surpassed only by the British pound. Analysts note that the "super peso" era has ended, ushering in a phase marked by resilience despite various challenges.

Several factors contributed to the initial strength of the peso, including favorable economic fundamentals, high interest rate differentials attracting carry trade investors, robust remittance flows, and positive expectations surrounding nearshoring. However, the currency's performance turned volatile in June following the electoral victory of the MORENA party, which led to concerns over potential constitutional reforms, such as the popular election of judges. Additionally, the liquidation of carry trade positions after the Bank of Japan's rate hike in July further pressured the peso. The approach of the US elections in November, and fears of potential tariffs under president-elect Donald Trump, compounded the uncertainty, keeping the peso trading in the MX$20 range.

From June onwards, volatility increased significantly, leading to a 13% decline against the dollar by Dec. 24, with the peso hitting a high of MX$20.83. 

On Dec. 26, the peso appreciated against the US dollar following a decrease in the number of Americans filing for unemployment benefits. The peso traded at MX$20.13 per dollar, a marginal gain of 0.06% from the previous day's reference price of MX$20.14 units by LSEG. Earlier in the session, the peso had declined by 0.28% in a market expected to have reduced liquidity due to the year-end holiday period.

The dollar strengthened due to expectations that the Federal Reserve will reduce interest rates less aggressively next year, increasing the value of the dollar and US Treasury yields, putting pressure on commodities and gold, reports Milenio. The dollar was near a two-year high, with a monthly increase of over 2%. Currencies such as the Australian dollar, New Zealand dollar, and the euro fell against the greenback, while the yen remained close to a five-month low.