The 'superpeso' will return stronger in 2025 despite judicial reform: Why will the currency recover?

Analysts expect the Mexican peso to appreciate to 18.5 pesos per dollar in 2025, which represents a significant improvement over current market expectations, which place the median at 19.13 pesos per dollar. 

This strengthening is due to growing investor confidence in the new administration and reduced volatility related to the U.S. elections.

In this context, it is crucial to highlight the strengths of the Mexican market, which include its strategic geographic position, which facilitates trade with the United States, as well as its diversified economy and robust manufacturing sector that benefits from the nearshoring. However, the country faces inherent weaknesses, such as a high dependence on the U.S. economy, which makes it vulnerable to any change in its northern neighbor's trade policies.

The peso suffered a 14% drop following the June elections, which resulted in a resounding victory for the ruling coalition, allowing them to make constitutional changes. However, since then, the currency has shown signs of recovery, rising more than 2% from its historic lows, as the inauguration of president-elect Claudia Sheinbaum approaches. 

The future of the peso is tied to the economic stance Sheinbaum adopts, especially in comparison to her predecessor, Andres Manuel Lopez Obrador. 

Opportunities arising from this change in administration could include the implementation of policies that encourage foreign investment and a more open approach to the private sector, which can revitalize market confidence. However, uncertainty surrounding judicial reform also poses a threat, as any hint of a weakening in the independence of the judiciary could discourage investment and generate exchange rate volatility.

The Mexican economy is at a critical juncture. Attention is focused on the new administration's ability to address logistical and infrastructure problems that have held back growth.

Initiatives to improve infrastructure are vital, as they would facilitate the arrival of more factories in the country, a process known as nearshoringThe company's operations in the United States, which involves moving operations closer to the United States to optimize the supply chain. In this regard, weaknesses in the current infrastructure, such as insufficient energy and water supply, can be a significant barrier to growth. However, if the new administration presents a clear plan for investment in these sectors, it could become a catalyst to attract more investment and strengthen the peso.

In addition, the management of the fiscal deficit is another issue of relevance. The intention to reduce the deficit from 5.9% of GDP to below 3.5% may be welcomed by the market, as deficit reduction tends to strengthen the currency by increasing investor confidence in the country's economic stability. An approach towards 4 or 4.5% could also be viewed favorably. However, the threats posed by a high interest rate environment in other emerging markets and potential volatility around the U.S. elections remain factors for investors to consider. 

The Mexican peso's recovery is linked to multiple factors, including the new administration's handling of economic policy, attention to judicial reforms, and focus on infrastructure. With the international context also stabilizing, Mexico has the opportunity to strengthen its economy and, therefore, its currency. The key will be to watch how policies develop under Claudia Sheinbaum's presidency and the market response to these initiatives.

Collaboration: Editorial Auge.