Among these three factors, the decisions of the Federal Reserve have become the main element that moves the exchange rate. This happened on Friday, when Federal Reserve Chairman Jerome Powell gave his long-awaited presentation at the annual Jackson Hole Monetary Policy Symposium.
Prior to this speech – as markets were looking for any indication to remove doubts about when the US central bank would start cutting its stimulus – the peso was making its second weekly decline, at an exchange rate of 20.39 units. However, as soon as Powell gave signals that the Fed would gradually begin to reduce its asset purchase program by $120 billion per month by the end of the year and not before, the peso regained strength.
“Tighter monetary policies in the United States are presenting headwinds for emerging-country currencies,” Gabriela Soni, chief investment officer for UBS’s Mexican unit, and Aligo Zironco, chief investment officer for emerging markets at UBS, said in a report. The same signature.
On the other side of the scale, the same analysts believe that the peso could find support in US fiscal stimulus and infrastructure spending. At the moment, with such caution in the markets, there is no clear direction for the exchange rate, as it remains above 20 pesos, according to Banco Base.
Analysts also agree that markets will be vigilant in the coming months, as the Fed is expected to announce when it will start reducing asset purchases and how fast the process is.
UBS specialists explained in their forecast that a new outbreak of the delta variable that has strained the health system and ultimately shutdown the economy, “could lead to a depreciation of the peso.” But, so far, there has been no overcrowding in hospitals and the government seems reluctant to issue a decision to close at the start of the pandemic.
For now, the path that the exchange rate will take is still linked to uncertainties about the pace of economic recovery. Marcus Allensbach, director of fixed income research at investment bank Julius Baer, puts it right: “The key question remains whether the economy will continue to recover or return to recession.”
These exchange rate fluctuations will remain throughout this year and the year after. Forecasts of private sector economists surveyed by Banco de México put the parity between the dollar and the peso at 20.29 units at the end of the year and a level of 20.80 units as of the second quarter of 2022.
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