Why Is the Mexican Peso Getting Stronger?

A nation’s currency value reflects its economic health. A stronger currency can purchase more of another, indicating increased demand or stability. This dynamic process is influenced by domestic economic conditions and international forces. Understanding these movements requires looking at both internal and external pressures.

Current Performance of the Mexican Peso

The Mexican Peso has demonstrated notable performance against the U.S. dollar, particularly in 2023. The peso closed 2023 at approximately 16.92 units per U.S. dollar, marking a gain of about 15% from its 19.47 level at the end of 2022. This appreciation led to the term “super peso” being used to describe its strength, as it reached its strongest average rate since 2015. However, the peso experienced depreciation in 2024, starting the year around 17 to the dollar but closing at 20.88, representing about a 19% depreciation.

For consumers in Mexico, a stronger peso means that imported goods become relatively cheaper, increasing purchasing power for foreign products. This effect can make international travel more affordable and reduce the cost of imported raw materials for businesses. Conversely, a stronger peso makes Mexican exports more expensive for foreign buyers, which can potentially reduce demand for goods and services produced in Mexico.

Key Economic Drivers

Mexico’s domestic economic policies and performance shape its currency’s value. Controlling inflation increases investor confidence. Mexico’s inflation rate declined from 5.53% in 2023 to 4.72% in 2024. This helps preserve the peso’s purchasing power, making it more attractive to investors.

Economic growth also influences currency strength by attracting foreign investment. An expanding economy signals opportunities for higher returns, increasing demand for the local currency. Mexico’s GDP grew by 2.4% in 2023, slowing to 0.9% in late 2024. A robust economy supports currency stability through increased productivity and exports.

The country’s trade balance, measuring exports versus imports, also impacts the peso. A favorable balance, where exports exceed imports, results in foreign currency inflow, strengthening the domestic currency. Mexico recorded a trade deficit in January 2025. Its main exports are manufactured products, with the U.S. as its largest trading partner.

Fiscal policy, including government spending and debt, contributes to economic stability and currency valuation. Prudent fiscal management fosters investor confidence, signaling lower economic instability risk. Sustainable financial practices support a stronger currency by reducing perceived risks.

Central Bank Influence

The Banco de México (Banxico), Mexico’s central bank, influences the peso’s value through monetary policy. Banxico uses interest rates to manage inflation and stabilize the economy.

Higher interest rates attract foreign investment, as investors seek better returns, increasing demand for the peso. Banxico raised its reference rate to 11.25% in March 2023, maintaining it for a year before a cautious cut in early 2024. As of August 2025, the rate was 7.75%.

The interest rate differential between Mexico and major economies, like the United States, attracts foreign capital. Higher Mexican interest rates incentivize investors to move funds into peso-denominated assets for higher yields. This “carry trade” strategy increases demand for the peso, contributing to its appreciation. The differential can remain attractive even with recent rate cuts.

Banxico aims for an inflation target of 3%, with a plus or minus one percentage point variability. Despite recent disinflation, annual inflation remains above this target. The central bank’s commitment to controlling inflation, even with high interest rates, reinforces investor confidence in the peso’s stability and future purchasing power. This approach supports the currency.

External Factors

Global economic conditions and cross-border financial flows impact the Mexican Peso. Remittances, money sent home by Mexicans working abroad, represent a consistent inflow of foreign currency. In 2024, Mexico received $64.7 billion in remittances, a new annual record. Most funds originate from the United States, providing a stable source of foreign exchange that supports the peso’s value and economic resilience.

Fluctuations in global commodity prices, particularly oil, also affect the peso. As an oil-producing nation, higher oil prices increase export revenues, boosting foreign currency inflows and strengthening the peso. Oil price increases tend to appreciate the peso against the U.S. dollar, reflecting Mexico’s dependence on this commodity. Global energy market dynamics directly influence the peso’s performance.

The U.S. economy, Mexico’s largest trading partner, is another influential external factor. A robust U.S. economy translates to higher demand for Mexican exports, increased tourism, and more foreign direct investment into Mexico. Over 80% of Mexico’s goods exports go to the United States. U.S. economic health directly impacts Mexico’s export industries and overall activity, affecting the peso.

Nearshoring, where companies relocate production closer to main markets, has driven increased foreign direct investment (FDI) into Mexico. This strategy shortens supply chains and reduces logistical costs, especially for North American market companies. In the first nine months of 2023, nearshoring-linked FDI in Mexico increased by 47%, indicating growing demand for Mexican assets and the peso. This relocation trend significantly bolsters the currency.