The peso’s back, and you’re gonna be sorry…

Via Ignacio Fariza in El País (my quick and dirty translation):

It’s a paradox for the currency market. If any currency was in the spotlight following the arrival of Donald Trump [in the White House], it was the Mexican peso. However, against all expectations, the Latin American currency has managed to overcome the worst omens, becoming the world’s best-performing currency since the new president of the United States arrived at the White House on January 20. In two weeks, the peso recovered 5% of its value after having fallen to its historical minimum coinciding with the Republican victory. That is the turning point.

According to Jan Dehn, head analyst for the Ashmore Group, currency traders should be optimistic. Bill Gross, one of the most important players in the global bond market, emphasized the “concern” generated by such a strong dollar for the future of the US economy and said the peso is “undervalued”. A stronger currency causes an artificial loss of competitiveness of the exports and reinforces the sale of imported products, to the detriment of the national ones.

For Mexico, the rise in the peso’s exchange rate against the greenback – the currency in which commodities and other financial assets are listed — is good news. Although it reduces the advantage Mexican exporters enjoyed over its competitors, and US remittances are worth less, depreciation undercut the whole of its economy. This despite rising concern over the potential effects of economic policy shifts by its northern neighbor in an economy in which seven out of every 10 pesos depend on exports. There are also fears that inflation is on the rise. In a country with wide-open markets, while worrisome for exporters and importers, the rising peso reduces some of the tension. And, best of all, the highly dollarized public debt, which amounted to 12% of GDP in 2014 — more than a fifth of its total public leverage — fell in the last two weeks by five percent.