By Noe Torres

MEXICO CITY (Reuters) – Mexico’s peso forex has reached its highest worth versus the U.S. greenback in seven years, because the president celebrates its energy however analysts warn of dangerous unintended effects on exports and remittances.

The Mexican peso is among the many top-performing currencies this yr with a 12% surge towards the U.S. greenback, after closing final yr up about 5%.

The peso’s positive aspects are anticipated to proceed, as cash flows maintain getting into the nation attracted by increased yields, which have grown extra engaging as a consequence of the central financial institution’s fee mountaineering.

However the Mexican forex’s current strengthening to about 17 pesos per U.S. greenback, from 19.50 pesos per dollar final December, makes Mexican exports costlier.

“A chronic appreciation of the tremendous peso could possibly be extra dangerous than useful,” mentioned Guillermo Mateos, analyst at Banco Base, noting it might slowdown exports as they get pricier.

In April, the worth of exports fell 2.9% year-on-year.

The worth of the peso additionally impacts the competitiveness of Mexico’s giant industrial sector, with unions warning that competitors with Asian merchandise will get more durable because the peso positive aspects since imports turn out to be comparatively cheaper.

Remittances are additionally being affected, as a weaker greenback interprets into fewer pesos when transformed, particularly in an setting of excessive inflation.

In reality, Banco Base sees remittances loosing greater than 10% of their spending energy if the peso-to-dollar alternate fee holds regular.

President Andres Manuel Lopez Obrador has repeatedly referred to the peso’s positive aspects – which he doesn’t management – as an oblique signal his administration’s austerity finances insurance policies. However the populist chief not often acknowledges the draw back of a stronger native forex.

“They’re already speaking concerning the Mexican miracle, the Mexican dream,” he mentioned at a current press convention, referring to the peso’s ongoing successful streak.

Tourism might additionally undergo, because the alternate fee hurts vacationers who would additionally get fewer pesos than earlier than, mentioned Jonathan Zuloaga, a Columbus de Mexico analyst.

Mexico’s peso is among the many world’s most liquid currencies because the nation adopted a free-floating alternate fee in 1994.

Bets for an excellent stronger peso on the Chicago Mercantile Change have grown since March. Final week, positions in favor of the forex gaining climbed to 78,809 contracts, one of many highest quantities since 2020.

Analysts surveyed by Citibanamex see an analogous development, anticipating the peso to understand to 18.32 pesos per greenback, from 18.70 pesos, by the top of this yr.