“Super Peso” Finally Tumled, but Quickly Recovered Thereafter
August 7, 2023
The Mexican peso tumbled last week amid a clear trend for global risk aversion, supporting calls on many Fx analysts that the Latam currency was set to reverse after a spectacular 7-month rally. However, later on it vigorously rebounded.
After becoming best of the best, MXN was among the worst performers globally last week, weakening 1.8% to 17.33 per dollar in its 4-straight drop as investors flocked to the greenback and sent long-term U.S. yields higher. Dubbed the “super peso” during its ascent, the currency is now on track to post its worst week in 20 months with a loss of about 3.8%.
Currently there has been rather stable increased appetite for the greenback even though Fitch Ratings on Tuesday downgraded the United States’ long-term foreign-currency issuer default rating to AA+ from the top-tier AAA. USD is likely to appreciate more in response to the economic data that continues to be stronger than expected, while disregarding the debt and bank sector problems, because, most importantly, the market thinks that the Fed will continue to raise rates.
In the meantime, Mexico's economy expanded during the April to June period for the 7th quarter, although at a slower pace. Latin America's second-largest economy posted 0.9% GDP growth in Q2 2023 on a quarterly basis, in line with forecasts and down from 1.0% growth in the previous quarter.
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