Question

to the best of your knowledge, explain why the Mexican Peso has depreciated so dramatically over the last year.

Answer 1

The Mexican peso continues to depreciate against the US dollar. Weakening of the peso has intensified driven by numerous global and domestic factors:

On a global level, the main driver has been the continued strengthening of the US dollar, as well as investor aversion towards emerging-market currencies ahead of a probable rise in the Federal Reserve (the US central bank) policy interest rate,

Although in recent months the peso has depreciated against some global currencies, including the euro and the pound, it has fared better against other Latin American currencies: it has strengthened against the Colombian peso and the Brazilian Real, but weakened relative to the Peruvian nuevo sol

Domestically, the sluggish economy as well as a continuing crisis of confidence facing the government and the political establishment, have not helped improve to sentiment.

Initial perceptions that weakening of the peso was a transitory phenomenon now appear increasingly misplaced, which may result in imported prices beginning to adjust to the reality of the exchange rate not falling any point soon.

Thus far, imported inflation has not manifested itself, but with a large share of consumer goods imported from abroad, particularly the US, this situation could begin to change in the second half of the year. Even without a major inflationary impact, the effect on consumer sentiment could still be significant, as Mexicans typically associate a period of sharp depreciation or devaluation with the onset of an economic crisis