By Noe Torres

MEXICO CITY (Reuters) – Mexico’s peso forex flexed its muscle on Monday to succeed in its highest worth in opposition to the U.S. greenback in seven years, following almost two years of rate of interest hikes geared toward taming inflation that has seen client costs edge down.

Some analysts chalk up the peso’s newest good points, nonetheless, as principally the flip facet of a weakening dollar.

The peso gained 0.95% on Monday to commerce at 17.42 pesos per greenback, its strongest stage since Might 2016.

Over the previous couple of years, the Mexican forex has principally hovered round 20 pesos per greenback, however over the previous 12 months it holds the excellence of the forex that has gained essentially the most in opposition to the U.S. greenback, or up almost 11%.

President Andres Manuel Lopez Obrador repeatedly touts the peso’s energy as proof of sound macroeconomic insurance policies, particularly his administration’s funds austerity and pledge to keep away from taking up new debt.

However Franklin Templeton portfolio supervisor Luis Gonzali cited different elements as being behind the peso’s newest surge, together with the sliding worth of the dollar, most lately on fears of a possible default if U.S. lawmakers don’t increase the nation’s debt restrict to be able to cowl already-approved spending.

“A giant a part of (the peso’s energy) is the greenback’s weak spot,” he mentioned, including that the Mexican economic system additional advantages from rising flows of mounted investments into the nation.

However Mexico Metropolis-based Gonzali additionally acknowledged Mexico’s more healthy funds, relative to different rising markets the place currencies haven’t benefited as a lot because the peso due partially to extra public expenditures, larger debt or looser financial insurance policies.

“Mexico has proven itself to be the least ugly individual on the celebration,” quipped Gonzali, serving to it entice extra dance companions.

On Thursday, the Financial institution of Mexico is seen sustaining its benchmark rate of interest at 11.25%, halting a cycle of hikes that started in June 2021, in response to a Reuters ballot of analysts.