Published On: Wed, Jul 26th, 2017

Can the Mexican peso continue to make ground on the dollar?

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The Mexican peso has shown some extraordinary performance over recent weeks, breaking the 17.50 threshold for the first time in over 14 months last week. The peso has so far been one of the best performing currencies from emerging market economies in 2017, but can it continue its rise against the dollar or are we going to see things level out a bit now the 17.50 level has been broken?

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Analysts Predict Further Rises in the Mexican Peso Against the Dollar

Analysts from various sources have shown that they do expect the peso to continue its rise. As reported earlier in the month, a leading analyst predicted that the peso could at that time soon break the 16 per dollar barrier. It has not yet exceeded his expectations, and a poll of analysts at Reuters showed that on average, their prediction was that the peso would be trading as high as 18.5 by the end of the year. However, there is essentially no sign of a slowdown yet, or that the peso’s prices are a bubble and will crash back down at some point in the near future.

Why Is the Peso Gaining Ground on the Dollar?

There were initially a lot of fears when Trump won the presidency that trade relations with Mexico would deteriorate and the peso would see a decline in value. However, none of those fears have been realized. This is largely because there are no signs that Trump is going to back out of the North America Free Trade Agreement, or NAFTA, which currently allows for free trade between the USA and other North American countries – including Mexico. This has assuaged a lot of doubts in the market and made the peso an appealing prospect for investors in emerging markets.

Add to that the discovery of a potentially huge supply of oil (over a billion barrels worth) off the Mexican coast recently, and Mexico is looking like a very nice prospect for investors.

On the US side, the expectation that the Fed will soon put interest rates to neutral levels, is also helping the currency pair in its current performance.

Those who use spread betting platforms to try to benefit from the performance of the peso against the dollar should probably plan with a continued rise in the peso in mind, and it will be interesting to see how the trend plays out over the rest of the year.

By Murray LeClair for SMT

This article is published on behalf of IG Markets. 



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