Peso Plummets to 15-Year Low Against Dollar, Rattling Mexican Economy
MEXICO CITY – The Mexican peso concluded a tumultuous year on Tuesday, closing at 20.82 pesos per U.S. dollar, marking a staggering 23% depreciation against the greenback. This represents the currency’s sharpest decline since the 2008 global financial crisis, raising concerns about the health of the Mexican economy and its vulnerability to external shocks. The peso’s freefall has been attributed to a confluence of factors, including political uncertainty surrounding the newly elected Morena government, escalating trade tensions with the United States, and global economic headwinds.
The year began with optimism for the peso, which appreciated steadily against the dollar for several months, reaching a nine-year high of 16.26 pesos per dollar in April. This positive trend was fueled by expectations of continued economic growth and stable relations with the United States, Mexico’s largest trading partner. However, the political landscape shifted dramatically following June’s general election, which saw the leftist coalition led by the ruling Morena party secure a landslide victory.
The election of Andrés Manuel López Obrador as president, along with Morena’s control of both houses of Congress, ushered in a period of uncertainty for investors. Concerns arose about the new government’s economic policies, particularly its commitment to fiscal discipline and market-oriented reforms. These anxieties were further exacerbated by the passage of controversial constitutional reforms in September, including an overhaul of the judiciary that critics argue will undermine the independence of the courts. This perceived threat to institutional stability contributed to the peso’s downward spiral.
Adding to the peso’s woes was the election of Donald Trump as U.S. President in November. Trump’s protectionist rhetoric and threats to impose tariffs on Mexican goods created a climate of fear among investors, who worried about the potential impact on Mexico’s export-dependent economy. The uncertainty surrounding the future of the North American Free Trade Agreement (NAFTA), which governs trade between the U.S., Mexico, and Canada, further exacerbated the peso’s decline.
The combined effect of domestic political uncertainty and escalating trade tensions with the U.S. created a perfect storm for the Mexican currency. As investors sought safer havens, the peso suffered heavy losses, reflecting a growing lack of confidence in the Mexican economy. The currency’s depreciation has far-reaching consequences, making imports more expensive, potentially fueling inflation, and undermining consumer purchasing power.
The Mexican stock market also suffered significant losses throughout the year, mirroring the peso’s decline. The main stock index closed on Tuesday at 49,513 points, a 14% drop from the beginning of the year and its steepest fall since 2018. This decline reflects the broader economic anxieties gripping the country, as businesses and investors grapple with the uncertainties surrounding the new government’s policies and the future of trade relations with the U.S. The peso’s dramatic fall and the stock market’s slump underscore the challenges facing the Mexican economy as it navigates a complex political and economic landscape.
