MexECON Blog

Peso Review - July 2011

In July, the Mexican peso rose 0.2% against the U.S. dollar, closing the month at a spot-market value of $0.0855 (11.70 per dollar).  That followed declines of 1.3% in June and 0.6% in May.  In spite of the small change in July, the peso was actually quite volatile during the course of the month.  It posted a significant rise in the first third of the month, a sharp pullback in mid-month, and then a recovery in the latter part of the month.  At the end of July, the peso was up 8.2% from its value one year earlier.

Comment:  The peso's volatility during July came in large part from renewed concerns about sovereign defaults in Europe, fiscal controversies in the United States, and a growing sense that the global economic soft spot could be more prolonged than earlier believed.  Even statistics from Mexico were disappointing, with data showing a slowdown in export growth, surging unemployment, and weakening consumer demand.  All these concerns appeared to outweigh the continued growth in the Mexican economy and the country's generally positive fiscal position.

Looking forward, the European Union's latest moves to avert a default by its weakest members could calm the financial waters for a time.  A deal to raise the U.S. debt limit and start bringing down the federal budget deficit could do the same.  Despite the high likelihood of continued good economic growth and positive fiscal performance in Mexico, however, the global economic slowdown looks likely to persist.  Moreover, investors soon may start to focus more intently on the Mexican elections in 2012.  These fundamental factors could be headwinds for the peso going forward.  Finally, technical factors do not point to much movement in either direction in the near term.  For example, momentum indicators are neutral.  In sum, the peso may continue to move sideways for the near term, though it probably still has some upside risk if the global economic and political environment calms down.

Patrick Fearon, CFA
Vice President, Fund Management

                                           U.S. Dollars Per Peso
Peso 1107

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