MexECON Blog

Peso Review - March 2014

In March, the Mexican peso rose 1.3% against the U.S. dollar, closing the month at a spot-market value of $0.0765 (13.07 pesos per dollar).  That marked the currency's second straight monthly gain, after an increase of 0.9% in February.  The peso spent the first half of the month fluctuating around its close at the end of February, but it then staged a healthy rally in the final ten days of the month.

Comment:  In the first half of March, the U.S. Federal Reserve continued to ratchet back its asset purchases, even as Russia's takeover of the Crimean peninsula threatened to seriously destabilize Europe.  It is therefore little wonder that the peso and many other emerging-market currencies were volatile or under pressure.  By month's end, however, investors began to focus on the remarkably dovish statements coming out of the Fed and its new chairwoman, Janet Yellen.  For the last year, all manner of risk assets have been trading based on the outlook for U.S. policy tightening, so the dovish sentiment now coming from the Fed policymakers offered assurance that liquidity would remain high and that capital would continue to flow into risk assets, pushing up their value.

Looking forward, the peso has the potential to continue rising as long as Ms. Yellen and other Fed policymakers continue to signal that U.S. monetary policy will remain loose.  Moreover, the continued drop in inflation in Europe and other key economies raises the possibility that monetary policymakers there will cut interest rates further or otherwise hike liquidity.  International security risks remain, and the peso could pull back if Mexican economic growth weakens too much, but the currency was able to overcome those headwinds last month and could continue to do so this month.  Meanwhile, technical indicators are mixed.  The peso is trading above its key moving averages, and it recently pushed through an important resistance level at approximately $0.0758 (13.19 pesos per dollar).  On the other hand, momentum indicators suggest the currency is short-term over-bought.  The peso's next notable resistance area is at approximately $0.0770 (12.99 pesos per dollar).  Its next notable support area is at $0.0760 13.16 pesos per dollar).

Patrick Fearon, CFA
Vice President, Fund Management

                                                         U.S. Dollars Per Peso
Peso 1403

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