The biggest surprise in markets this year has been the US dollar. At the end of last year, many analysts expected the greenback to weaken in 2018. Instead, it’s gone from strength to strength, especially in the past few months, as US economic growth pulled ahead of other countries.
But one currency has been even stronger: the Mexican peso. Compared to the end of last year, the peso is 2.3% up against the US dollar, the best-performing major currency against the greenback so far in 2018.
It hasn’t been a straightforward journey. In June, the peso fell to its weakest level against the dollar in a year and a half as talks over the future of the North American Free Trade Agreement were delayed, and a presidential election loomed that threatened to shake up Mexico’s political system. The peso has since recovered most of those losses, despite ongoing ructions over trade with the US. While the renegotiation of Nafta has progressed slowly, talk of scrapping the deal entirely has subsided; Mexico, Canada, and US appear keen to come to an agreement soon (paywall).
The gains in the peso ramped up as leftwing populist Andrés Manuel López Obrador won the presidential election at the start of July, with promises to ensure central bank independence, support the private sector, and rein in spending. Since the election, the dollar has weakened by 3.5% against the peso, and a Reuters poll of analysts suggests this trend will continue, even if Mexico’s currency recently succumbed somewhat to the hammering that emerging-market currencies have taken as the Turkish lira’s recent collapse spread to other markets.