Unlike many U.S. dollar-based pairs, the Mexican peso (MXN) has enjoyed a robust performance against the U.S. dollar (USD) this year. As of Nov. 20, the Mexican peso has roared in value by 6.74% against the greenback over the year to date—one U.S. dollar can buy M$19.44 compared to M$21.00 a year ago.The peso’s strength reflects a relatively optimistic outlook for the Mexican economy, with 2022 growth surpassing expectations. Having grown 4.8% in 2021, the World Bank expects it to grow by 2.1% in both 2022 and 2023.
In contrast, multiple forecasts predict an imminent U.S. recession of various magnitudes. David Soloman, chief executive officer of Goldman Sachs, predicts a “reasonable” chance of a U.S. recession in 2023. In addition, analysts from the Federal National Mortgage Association anticipate a U.S.-based recession will start in Q1 of 2023.
The U.S. dollar has endured a broad-based downtrend against the Mexican peso throughout 2022. This is despite printing record and multi-decade highs against both emerging and developed markets currencies alike. This was a consequence of increased U.S. dollar capital inflows seeking safety amid heightened geopolitical uncertainty and economic adversity.
A hawkish Federal Reserve (Fed) was also a significant pull factor for investors seeking exposure to further rate hikes. However, the U.S. dollar’s weakness against the Mexican peso reflects the peso’s relative strength compared to many U.S. dollar-based pairs.
It is likely the Mexican peso will experience further gains into 2023, especially if its projected economic growth and the widely anticipated U.S. recession become a reality.
This following examination into the factors that influence USD/MXN includes a Mexican peso to U.S. dollar forecast for a variety of time horizons.
US Dollar Performance and Drivers in 2022
U.S. dollar strength has been a prominent theme throughout 2022. The ICE Dollar Index (DXY) recorded a 20-year high of 114.00 in September as the greenback soared in value against its traditional competitor currencies.
The index, used to measure U.S. dollar strength or weakness compared to a basket of other mainstream currencies, reflects a 12.32% gain on the year to date. This follows the 14% increase made upon reaching its 2022 high.
As of Nov. 21, the following summary broadly illustrates the extent to which U.S. dollar has performed relative to its five major pairs:
EUR/USD: One euro equals $1.02, a U.S. dollar increase of 8.72 on the year
USD/JPY: A dollar buys 141.71 yen, a U.S. dollar increase of 23.13%
GBP/USD: One pound buys $1.18, a U.S. dollar increase of 11.9% in a year
USD/CAD: A U.S. dollar buys $1.34, a U.S. dollar increase of 6.12% on the year
USD/CHF: A U.S. dollar buys 0.95 francs, a U.S. dollar increase of 2.84% in a year
As the U.S. dollar is a counter-cyclical currency, historically performing well throughout times of geopolitical and economic adversity, a challenging 2022 macroeconomic climate has represented the “perfect storm.”
The Russia-Ukraine war, soaring global inflation and post-pandemic domestic labor shortages have collectively contributed to increasing U.S. dollar strength.
A hawkish Fed, providing seven successive rate increases to counter inflation, at a 40-year high, has helped the U.S. dollar become a choice destination for investors seeking safety and exposure to further interest rate increases.
USD to MXN Forecast
Inflation forecasts and subsequent central bank monetary policy could precipitate long-term weakness for the future U.S. dollar. The greenback made a sudden 1.32% decline against the Mexican peso after a 0.5% decrease in the expected annual rate of U.S. inflation was reported. The anticipated U.S. Consumer Price Index number thwarted expectations at 7.7%—down from the projected 8.2%.
Early signs of falling inflation fueled speculation of a less hawkish Fed. This precipitated a “risk on” environment with U.S. dollar investors swapping safety for riskier asset classes.
It can be expected that future declines in the rate of inflation will correlate with U.S. dollar weakness as appetites for higher risk will prompt accelerated U.S. dollar outflows.
The FOMC projects inflation to fall to 2.8% in 2023 and 2.3% in 2024, declining from the 5.4% forecasted for 2022. Furthermore, the International Monetary Fund (IMF) expects inflation to fall from 8.1% in 2022 to 3.5% and 2.2% in 2023 and 2024, respectively.
If an inflationary environment persists in Mexico or falls at a slower rate than in the U.S., a more hawkish Banco de México (BdeM) can be expected. It is likely this could further strengthen the Mexican peso against the U.S. dollar.
Mexican Peso to US Dollar 6-Month Forecast
As of Nov. 23, one U.S. dollar buys M$19.546. Mexican peso vs. dollar forecasts for the six months are mixed but moderate in terms of Mexican peso weakness and strength. Algorithm-based price prediction service Wallet Investor anticipates mild U.S. dollar weakness, forecasting a 19.251 (closing rate) for USD/MXN in April 2023. Trading Economics, an online data provider, provides a more bearish outlook for the Mexican peso trading at 20.610 to the U.S. dollar in six months.
MXN to USD Long-Term Forecast
Before considering peso vs. dollar forecasts, remember that they can be adjusted at any time.
Wallet Investor warns the “USD to MXN Forex pair is a bad long-term (one-year) investment.” The service projects a closing rate of 19.555 in December 2025 and 19.557 in November 2027. AI Pickup, an algorithm-based prediction service, forecasts the U.S. dollar to strengthen against the Mexican peso to a high of 23.45 in November 2023, before weakening to 19.88 in November 2032.