Mexico's López Obrador claims Peso strength reflects confidence in his economic strategy

President Andrés Manuel Lopez Obrador rejected the opinion of expert economists who claim that the recent recovery of the Mexican peso, reaching levels registered before the pandemic, is due to the weakness of the dollar. On the contrary, the president affirms that it rather reflects the "confidence" of the markets in the economic strategy of his administration.

According to specialists, the strength of the Mexican currency -which has been rising for just over five weeks, to the point of 21 pesos per dollar- is mainly due to the weakness of the dollar index, in an environment of high volatility due to the Covid-19 pandemic on the economy of that country, in addition to other factors, such as trade tensions with China.

However, on Thursday, during his daily press conference, López Obrador dismissed these explanations: "It is rather simplistic to say so, because if that is the case, any other currency in the world would strengthen. Why does the peso appreciate? Because there is confidence", he said.

In his address, the President assured that the economic strategy "works because now there is more confidence in the government than before, there is more respect for it because the authentic rule of law prevails. Now they know that there is legality".

The truth is that market data shows that at the same time that the value of the dollar weakened, other currencies strengthened, not only the Mexican currency. In addition, the peso was not always placed as the most appreciated currency, as there were days, like last Tuesday, when it was actually number seven.

At the time of López Obrador's speech, the exchange market opened, reaching 21.04 pesos per dollar, with a correction after touching a level of 20.92 pesos per dollar. The exchange rate reacted to a report by the U.S. FED, which signaled that the interest rate could remain in a range between 0.0 and 0.25% until 2023, in addition to continuing economic pressures.

Experts recognize that there are domestic reasons that also drive the peso, but they have little to do with confidence in the government strategies and rather relate them to the high interest rates that Mexico maintains, despite the latest cuts and those that will probably occur during the year, up to 4%, according to estimates.

It is also worth mentioning that the presentation of the 2021 Budget did not generate great surprises, neither for better nor for worse, so there was no response from the exchange market, even though the "optimism" of Finance Secretary Arturo Herrera was criticized regarding his GDP estimates and the oil platform.

There are some central points of this government, such as the energy strategy, that continues to fail to generate confidence in the market, as reflected in the wide differential that exists between Pemex and the treasury bonds. This sector has also raised strong questions about the legality of the contracts signed in the energy reform.