20 Pesos – Mexico

In 2022, Mexico's currency, the peso (MXN), demonstrated remarkable resilience in the face of significant global headwinds. The year began with the peso trading around 20.5 per US dollar, and it maintained relative strength throughout, closing the year near 19.5. This performance was notable as it occurred against a backdrop of aggressive interest rate hikes by the U.S. Federal Reserve, which typically triggers capital outflows from emerging markets. The Bank of Mexico (Banxico) played a crucial role by implementing an even more aggressive monetary tightening cycle, raising its benchmark rate from 5.5% at the start of the year to 10.5% by December. This policy differential helped support the peso by attracting foreign investment into higher-yielding Mexican assets.

Several structural factors underpinned the peso's strength. Record-high remittances, which exceeded $58 billion for the year, provided a consistent inflow of US dollars, bolstering the country's current account. Furthermore, Mexico benefited from the ongoing trend of "nearshoring," as global companies sought to relocate supply chains closer to the North American market amid geopolitical and trade tensions. This prospect of increased long-term foreign direct investment boosted investor confidence. Additionally, high prices for Mexico's key commodity exports, particularly oil, contributed to a favorable trade balance during parts of the year.

However, the peso's strength was not without domestic controversy and risk. President Andrés Manuel López Obrador (AMLO) frequently criticized Banxico's rate hikes, creating tension between the government and the autonomous central bank. Investors also monitored the president's contentious energy and mining sector reforms, which created policy uncertainty. While the peso was a regional outperformer in 2022, its stability was tested by global volatility, including the war in Ukraine and persistent inflation. Ultimately, the year highlighted a divergence between a robust currency, supported by monetary policy and external income, and a domestic economy experiencing modest growth and ongoing political debates over the state's role in the economy.