Mexican Peso Strengthening – Lowest US$ Exchange Rate in 2+ Years

January 16, 2011 at 2:27 pm Leave a comment

The Mexican peso has reached its strongest exchange rate against the U.S. dollar since October 2008 — 12.07 pesos to US$1 — benefiting some in the domestic market, while bringing back some concerns about a “Super Peso” for those that are involved with (or depend upon) cash inflows from the United States.

Mexican Peso - US Dollar Exchange Rate

Possible Return of the Super Peso in 2011?

As seen in the graph at right (developed by Crossborder Group and based on historic Banco de México peso exchange rate data [showing the official rate to resolve currency obligations]), the peso was last at these levels in early-October, 2008, during a time in which the peso depreciated by 20-30% from 10 pesos per US$1.

A variety of factors appear to be creating this peso-strengthening trend:  a still-slow U.S. economic recovery, concerns about certain European markets (and the stability of the Euro), and the contrasting relative fiscal/economic stability in Mexico.  In fact, recent efforts by the Calderon Administration to increase foreign reserves to over US$113 billion and secure a US$73 billion two-year line of credit from the IMF, while maintaining Government debt to just over 2% of GDP, will likely contribute to some continued strengthening of the peso for at least the first half of 2011.

A new Super Peso could lead to increasing costs for international visitors to Mexico, as well as a higher cost for production in the foreign-dominated IMMEX/maquiladora industry — potentially undermining some of Mexico’s competitive strength internationally.  Crossborder Group will continue to track this issue throughout 2011, and can provide insights into potential impacts on your market or industry — contact us at answers[at]crossborderbusiness.com for more information.

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Entry filed under: Research-Insights. Tags: , , , , , , .

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