The Mexican peso broke the key 18.00 pesos per dollar barrier for the first time in nearly five years on Friday, lifted by Mexico's solid fiscal position, healthy inflows of remittances and a widening rate differential between Banxico and the US Fed.
The gap between interest rates in Mexico and the United States, as the Bank of Mexico, known as Banxico, enacted a bigger-than-expected 50 basis points rate hike last month, has helped to fuel the peso.
Mexico's currency has also benefited from a robust inflow of remittances, growth in exports and foreign direct investment.
Banxico governor Victoria Rodriguez pointed to several macroeconomic factors supporting the peso, including Mexico's solid fiscal position relative to other emerging economies,external accounts at sustainable levels, increased remittance flows, and a very stable ratio of debt to GDP.
"And the rate differential between Mexico and the United States has also, of course, contributed," Rodriguez said in a quarterly report on Wednesday.
The peso's gains are a likely boon for President Andres Manuel Lopez Obrador, who often touts its strength as one of his government's big accomplishments.
In early morning trading the peso slipped past 18.00per dollar, appreciating to 17.9760, a level it had not reachedsince April 2018. It then pared back some of its gains.
The peso has steadily gained pace in recent months, first creeping below 19 pesos in January and gaining more than 2.5% this week alone.
Gabriela Siller, at Banco Base, flagged the general weakness of the US dollar, which is on track for its first weekly loss since January against major currencies amid uncertainty around the Federal Reserve.
Private sector analysts polled by Banxico expect the peso to lose some steam before the end of 2023, forecasting it would end the year at 19.80 pesos per dollar.
