The Mexican Peso outlook at the mercy of US economic trends is not good. These trends are greatly impacting the foreign exchange markets and causing the Mexican Peso to lose value. This process has been occurring for months but is now becoming more obvious with the current policies of the US Federal Reserve. The Fed has continued to raise interest rates, which have caused a decrease in demand for US Dollars, which is now being valued at less than half of what they were a year ago.
It has been stated by many experts that the Fed will raise interest rates once again, but what is unclear is how long it will continue before it must hike rates in order to accommodate the changing conditions. Because the Mexican Peso has lost so much value, more than likely no matter what, it will continue to depreciate in value, even if it will stabilize from this downward trend. When the dollar loses its value, this results in a reduction in purchasing power for goods and services purchased outside of the United States.
Demand for goods and services in the United States is declining, and in fact a majority of business and consumers are predicting that the economic outlook for the US Dollar will worsen before it improves. What this means for the Mexican Peso is that it will continue to lose value as the US Dollar falls. With the daily cycle of the economy, and a weakening dollar, the USD loses value, the USD rises, and the USD drops, the same is true for the Mexican Peso, therefore, it cannot afford to hold its value indefinitely.
This problem will only be exacerbated if the US government tries to force the Mexican Peso to rise against the US Dollar. A rise in the value of the US Dollar would cause the cost of goods sold for Pesos to increase, but at the same time, the cost of goods sold for the US Dollar would also increase, because it loses its value relative to the Mexican Peso. This scenario would only result in the exchange rate of the Peso becoming more volatile, and less stable over the next few years.
This creates a situation where the lower the US Dollar becomes, the more it becomes stronger. As the Mexican Peso loses value, more Americans are now looking for Mexican Pesos to purchase goods and services because they cannot afford to purchase the goods and services being sold for Pesos.
The US government will be forced to raise interest rates at some point in order to control the spiraling devaluation of the US Dollar. When this happens, the USD will become even weaker, and Mexico will need to find other ways to stabilize its exchange rate. Unfortunately, this does not appear to be an issue that can be solved in a short period of time.
Economists say that the higher interest rates will cause price inflation, and the reason for this is because when the Peso loses value, the price of goods and services goes up, so a large number of consumers will be out of a job. Because of this, price inflation will occur at a faster rate, and it will hit consumers in their wallets in a very painful way. The whole process could even create a depression-type scenario for the economy, with negative consequences that may affect the US economy for a long time to come.
In the short term, consumers in the United States should avoid making unfavorable investment decisions because prices of goods and services, especially those being sold for Pesos, are already sky high due to the previous increased value of the US Dollar. Buying goods and services that are cheaper for the Dollar is the best strategy, as it will save the consumer money, and at the same time, have a higher likelihood of being able to pay for these purchases.
When the US Dollar is low, the Mexican Peso rises, and this is a situation where many Americans are finding themselves in. While the price of products being sold for Pesos is on the rise, they have been told that the Federal Reserve will continue to raise interest rates. Many believe that this is the biggest problem at hand, and they are scared to death that they are about to fall prey to this type of scenario.