Mexican Peso Hits Weakest Level Since Last March Amid Dollar Strength

The Mexican peso has hit its weakest level since last March, reaching 18 pesos per dollar on Monday. This marks a significant depreciation for the currency, which closed at 17.95 pesos per dollar according to Bank of Mexico data.

The strength of the US dollar, uncertainty over the conflict in the Middle East, and rising global interest rates have all contributed to the peso's decline. The Federal Reserve raised its interest rate by 25 basis points last week, placing it between 3.75% and 4%. This decision strengthened the dollar, while the Bank of Mexico kept its rate at 6.5%, narrowing the gap between the two countries' interest rates.

Analysts say that this reduced interest-rate differential has reduced the appeal of the carry trade, a strategy that involves borrowing in countries with low interest rates to invest in those with higher yields. The Mexican peso and Colombian peso were among the currencies that benefited most from this trade, but are now losing value as investors become more risk-averse.

Gabriela Siller, director of analysis at Banco Base, notes that the interest-rate differential between Mexico and the US is at a historic low of 250 basis points. If the Fed raises its rate again in December and the Bank of Mexico holds its rate, this could create a new historical low in the differential.