The mexican peso has been getting stronger for a while now. It has actually become the world’s strongest currency, a distinction it has held since 2017. This is partly due to foreign investment in Mexico and the country’s relatively low debt levels. Another factor has been a tightening of the central bank’s monetary policy.
All of these factors have pushed the peso to its current level of about 19 to the dollar. But it’s important to remember that the peso can also get weaker, especially if the U.S. Federal Reserve starts hiking interest rates again.
Rising rates can cause the why is the mexican peso getting stronger to weaken because they make it more expensive for companies and consumers to buy Mexican goods. That can hurt the economy, and could even lead to a recession.
On the other hand, a stronger peso can boost the economy by making it cheaper for foreign investors to invest in Mexico. That can lead to a flow of capital into the country, and help it grow faster. But it can also make Mexico’s exports less competitive because they will be more expensive to buy in the United States.
That’s why many analysts believe that the peso will eventually start to weaken again. The reason is that the currency has been gaining strength for so long that it may have already reached its equilibrium value. As such, it’s unlikely to gain much more strength unless some major unforeseen event happens.
A stronger peso can also hurt the economy if inflation starts to rise quickly. This is because higher inflation can make it harder for the country to pay its debts. Moreover, it can discourage businesses from investing in the country by making it more expensive to borrow money.
Fortunately, Mexico’s inflation rate is currently fairly low. This is mainly because the country has a strong manufacturing base, with finished factory goods accounting for 72% of the nation’s exports. Additionally, Mexico’s labor costs are significantly lower than those in the United States.
Another reason why the peso has been so strong lately is that the Bank of Mexico (BOM) is raising interest rates six percentage points faster than the Fed. This has helped to keep the inflation rate down, and has been a positive for the peso.
But the BOM’s current policies could soon be coming to an end. In fact, the bank is expected to start raising rates again this year. This will likely push the peso down to about 21 pesos per dollar by the end of this year, and 20 pesos per dollar next year. That said, the peso has a lot of other strengths that can help it stay afloat during these times of uncertainty. This includes the fact that it has a large trade surplus with the United States, and that its currency is very popular among tourists. It’s important to keep these facts in mind when predicting the future of the mexican peso.