MexECON Blog

Peso Review - July 2010

In July, the Mexican peso rose 2.9% against the U.S. dollar, closing the month at a spot-market value of $0.0790 (12.66 per dollar).  At the end of June, the peso had traded at $0.0768 (13.02 per dollar).  Amid easing concerns about European debt and the risk of sovereign defaults, the upward move in the peso during July was relatively steady, and the currency's closing value was the highest of the month.  Nevertheless, the peso at the end of July was still down some 4.1% from its most recent intraday peak of $0.0824 (12.14 per dollar) on April 25.

Comment:  Although concerns about the debt situation in Europe have subsided, especially after the completion of "stress tests" on most major European banks, there are lingering worries, and those worries have weighed on the market for foreign bonds and currencies.  Moreover, Mexican imports have started to rise even faster than Mexican exports, and the country's trade balance is slipping back into deficit.  These fundamentals have diverted attention from the generally positive fiscal and debt situation in Mexico.  Therefore, the peso now looks unlikely to rise in the near term as rapidly as it did in its sharp recovery from early 2009 to early 2010.  Technical analysis also suggests the currency is at a challenging point.  While the peso moved comfortably above both its 20-day and 50-day moving averages during late July, it ended the month at a clear resistance point.  While momentum indicators do not suggest the currency is overbought, they also do not suggest it is oversold.  In this environment, the currency is likely to be relatively flat or rise only modestly in the near term.

Patrick Fearon, CFA
Vice President, Fund Management

                                             U.S. Dollars per Peso
Peso 1007

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