MexECON Blog

Peso Review - February 2012

In February, the Mexican peso rose 1.4% against the U.S. dollar, closing the month at a spot-market value of $0.0777 (12.87 per dollar).  That marked the second straight increase in the value of the peso, after a surge of 7.0% in January.  The currency's January strength carried over into February, and it reached an intraday high of $0.0793 (12.61 per dollar) on February 6.  That was the strongest value for the currency since early September.  After that, however, the peso began to take a breather, giving up a good portion of its early-February gains by month's end.

Comment:  The peso's behavior in January was consistent with my projections last month, when I noted that strong fundamentals and a stabilizing international environment would likely continue to put upward pressure on the currency, but that some technical indicators suggested any near-term gains might be muted.  Indeed, the peso's intraday high on February 6 was very close to the resistance level of $0.0800 (12.50 per dollar) that I tagged in my January review.

Mexico's good economic growth, healthy fiscal policy, and relatively high interest rates should continue to support the peso in the near term.  Moreover, the international environment continues to settle down, encouraging capital flows back into riskier assets.  Accelerating economic growth and falling unemployment in the United States are perhaps the most encouraging international developments.  In addition, the European debt crisis is starting to cool, as the European Central Bank further boosts bank funding, government leaders finalize a new bailout of Greece, and politicians and economists start to put more focus on implementing growth policies.  Equally important, the peso's technical indicators are now more encouraging than they were at the end of January.  While the currency has slipped modestly below its 20-day moving average, that is a point where it has often rallied in recent months.  Also, momentum indicators suggest the currency is now much less overbought than it was one month ago.  Unless the U.S. economy stumbles again or the European debt crisis worsens, the peso's recent time-out may simply be a harbinger of renewed gains.  The currency's next resistance level is at approximately $0.0800 (12.50 per dollar).  Its nearest support level is at approximately $0.0770 (12.99 per dollar).

Patrick Fearon, CFA
Vice President, Fund Management

                                                              U.S. Dollars Per Peso
Peso 1202

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