The News
The News
Wednesday 10 of August 2022

High Volatility

Peso and dollar bills,photo: CAPITAL MEDIA/Alejandro Meza
Peso and dollar bills,photo: CAPITAL MEDIA/Alejandro Meza
All analysts seem to agree that what has the peso trembling in fear of further devaluation is just one thing: the U.S. presidential election

Only two weeks ago new Mexico Treasury and Public Finance (SHCP) secretary José Antonio Meade Kuribreña forecasted that the economy was stable and that at worst by the end of Enrique Peña Nieto’s term the peso dollar parity would be 18.20 pesos for one greenback.

No sooner had Secretary Meade Kuribreña uttered this prophetic stanza than the peso went tumbling from 18.20 down to 20 pesos per dollar.

All analysts seem to agree that what has the peso trembling in fear of further devaluation is just one thing: the U.S. presidential election.

The bet on further devaluation is a risky bet for the next two months, until election-day Nov. 8. Those who thrive on exchange mobility or downgrading have two paths.

If they buy dollars now at 19.77 (the price quoted for Tuesday by the Mexico’s Central Bank) and Hillary wins they would be losing some money, as the forecast made by Meade of 18 peso parity would most likely be true and the dollar would lose ground by mid-November.

But should The Donald come out winner, expect further devaluation to up to 25 pesos or even 30 according to the prophets of doom. This might spell disaster for the Mexican economy, but if you have dollars by election-day, you can be ready to dump them or keep them, depending on the election winner.

In short, the word “volatile” in terms of the peso dollar parity is being flung around, and the word is accurate as the peso seems to be the only currency currently affected by what’s going on in terms of the Hillary versus Trump election.

But there are other reasons that can’t be blamed on either of the candidates or on Trump’s mouthful of tirades against Mexico in his quest to gain the U.S. presidency.

Add to it what Mexican economists have come to know as President Enrique Peña Nieto’s “Seven Economic Deadly Sins” for which the president — and his Treasury secretary, previously Luis Videgaray — may be found guilty of.

The sins are the huge government debt EPN acquired when the administration came to power in 2012 and our politicos were living high on the hog, the brutal slump of oil prices, the lack of gross domestic product growth, insufficient investment both public and private, the nasty effect of the energy and education reforms on the economy, capital flight because of alleged instability and corruption, which, if not rampant, is at least very visible.

And of course the eighth horse of the apocalypse is devaluation itself, an issue in which the government is playing a blindfolded child trying to bash a piñata with a stick, missing every blow much to the chagrin of a population who keeps watching how their hard earned pesos turn into nearly worthless “pesitos.”

Notwithstanding that the ordeal for the Mexican currency will not stop until November, Mexico’s Central Bank (Banxico) has to act regardless of how the Fed goes next Friday when it is to announce if it keeps the same rate or changes it.

“It’s necessary for Banxico to increase interest rates to try and mitigate this uncertainty,” says Raúl Feliz of the Center for Economic Research and Teaching (Ciide).

Maybe professor Feliz is right, but then, maybe not, because whatever reaction comes to a Banxico increase on the interest rate will surely rattle the market, and it may be interpreted either as a strength or a weakness, as in the second quarter Banxico did just this and the result was a four billion dollar capital flight.

For now, forget the Fed and Banxico in figuring out the upwards or downwards behavior of the battered Mexican peso. What’s next in line is the result of the first debate between Clinton and Trump next Monday Sept. 26 which might bring some stability to the Mexican market.

Incidentally, the Mexican Bolsa has not been subject to this turbulence and Tuesday was steady at approximately 46,400, which is pretty good. You see, Trump does not create chaos on whatever ground he steps on!

But for now, your dollar is worth 20 pesos, with no inflation for the Mexican peso which only means that your purchasing power has gone up, for the moment.

Don’t forget, volatility is the name of the current peso dollar exchange game!

As for SHCP secretary Meade Kuribreña, he might as well light up candles to the Virgin of Guadalupe, in hopes that Hillary wins at least the first debate. Otherwise his hopes to be presidential candidate will be a wreck.