The Mexican financial system continues to be resilient.
The global economy has been recovering, even though projections for 2023 point to a slowing of growth rates compared to the previous year. Global inflation...
The Mexican peso, which had been riding a wave of growth in recent months, is now encountering headwinds as a result of the turmoil on the world markets. This week, the currency fell sharply by 4% against the US dollar, outperforming other significant currencies in the region including the Colombian and Chilean pesos and the Brazilian real, which also suffered 3% declines over the same time. The exchange rate for the dollar in Mexico as of Thursday is 17.30 pesos.
The risk agency Fitch cut the United States' debt rating on Tuesday to AA+, citing delays in debt ceiling negotiations as the reason for the unexpected decrease. Following a judgment by another rating agency, this action encouraged investors to modify their portfolios by lowering exposure to assets linked to U.S. debt. As a result, the effect spread to the Mexican stock market, exacerbating the peso's problems.
The U.S. dollar rose to a four-week high on Thursday as a result of encouraging news from the U.S. job market, according to Reuters, which made the peso's drop even worse. A broad slide in currencies has been sparked by this bullish dollar action across developing markets, with Latin American currencies seeing notable drops against the dollar. The Mexican Peso, which had the worst performance among its peers in emerging markets, was particularly heavily affected.
Market analysts are now issuing a warning that the abrupt change in circumstances may indicate that many currencies in the area were overextended. They highlighted the second half of the year's possible challenges and attributes them to divergent monetary policy cycles between central banks in Latin America and the U.S. Federal Reserve.
It's interesting to note that Brazil has taken steps to solve economic difficulties as the peso struggles with them. Following the central bank of Chile, Brazil dropped interest rates for the first time in three years, starting a downward rate cycle as the region's inflation reached its peak. Market observers, meanwhile, are anxiously awaiting Mexico's impending monetary policy announcement, anticipating a pause to interest rate increases and the maintenance of the reference rate.
Overall, the recent collapse of the Mexican peso, which was brought on by the downgrading of U.S. debt and the dollar's rebound, has brought attention to the difficulties encountered by Latin American currencies in a volatile international market. Investors are preparing for potential challenges, but attention is still on how the region's central banks will handle the current turbulence.