Dr. Ramiro Esqueda Walle
Professor-Researcher at the Autonomous University of Tamaulipas
President of the Association of Economists and Specialists of Tamaulipas
resquedaw@uat.edu.mx
In recent months, the appreciation of the Mexican peso against the U.S. dollar has garnered increasing attention in political discussions as well as everyday conversations. It has also become a focal point in academic circles. What is noteworthy is the tendency to adopt politicized positions and interpretations, often leaving unanswered the fundamental question of what determines the peso-dollar exchange rate.
This interest is heightened on days like today (June 6, 2023) when the exchange rate briefly reached $17.37 per dollar, the lowest level since April 2016. In this context, the following lines aim to shed light on a recurring question for economists and specialists in the field.
The exchange rate between the U.S. dollar and the Mexican peso experiences constant fluctuations influenced by various factors, including:
i) Economic conditions in the United States and Mexico: The prevailing economic conditions in both countries often influence the exchange rate. A thriving U.S. economy tends to strengthen the value of the dollar, while a robust Mexican economy can lead to an appreciation of the peso.
ii) Interest rates in the United States and Mexico: Interest rates play a crucial role in determining the exchange rate. If interest rates in the United States are higher than those in Mexico, investors tend to shift their funds to the U.S., causing an increase in the value of the dollar, and vice versa.
iii) Political stability in the United States and Mexico: The exchange rate is also affected by political stability. Episodes of political instability in either country can result in a depreciation of their respective currencies.
iv) Inflation rates in the United States and Mexico: Inflation has an impact on the exchange rate as well. When inflation is higher in the United States compared to Mexico, the peso tends to appreciate.
v) Oil prices: Since oil is a significant export for Mexico, fluctuations in oil prices can significantly influence the value of the peso. If oil prices increase, the value of the peso generally decreases.
vi) Speculation by investors: Speculation, where investors buy or sell currencies in anticipation of making a profit, can also affect the exchange rate. High levels of speculation in the market can lead to substantial fluctuations in the exchange rate.
It is crucial to keep in mind that exchange rates can be volatile, emphasizing the importance of checking the latest quotes before conducting any transactions. Current exchange rates can be found online or at banks.
Understanding the factors that influence the exchange rate enables individuals to make more informed decisions regarding the timing of currency purchases or sales. However, it is important to remember that the exchange rate is constantly changing, and accurately predicting future rates is impossible.
