Peso power: Mexican currency nears six-year high vs. dollar

It’s good to be the peso.

The Mexican currency’s hot streak is about to take the official exchange rate through the 10-to-the-dollar threshold for the first time since 2002. American tourists, you’ve been warned.

Buttressed by rising interest rates and a surprisingly strong economy, the peso has been surging against the dollar in the last few weeks, continuing a run-up that began early in the year.

The official market rate -- meaning for large transactions at banks -- had the peso at 10.005 to the dollar this morning, down from 10.07 on Tuesday, according to Bloomberg data. Last August the dollar still was worth more than 11 pesos.

The last time the dollar bought fewer than 10 pesos was in October 2002.

For U.S. tourists the greenback already has crossed that line, because most bank exchange rates are much less favorable than the official rate. Wells Fargo & Co.’s online currency center today was quoting 9.2 pesos per dollar.

It’s the trend that’s important here: The peso’s strength indicates that global investors like what they see in Mexico.

For one, the nation’s central bank raised its benchmark short-term interest rate from 7.5% to 7.75% on June 20 to combat rising inflation, and lifted it again last week, to 8%. That is helping to attract more money to Mexican money market accounts and to bonds.

What’s more, "The economy has held up pretty well despite the U.S. slowdown," says Win Thin, senior currency strategist at Brown Bros. Harriman & Co. in New York.

As for the Mexican stock market, it also is holding up relatively well. Despite diving 8% in June amid the global market sell-off, the country’s IPC stock index is off a modest 6.7% year to date, about half the drop in the U.S. Standard & Poor’s 500 index.

And for U.S. investors in Mexico, the robust peso means Mexican stocks are worth more when translated into dollars. Measured in greenbacks, the IPC index is up 1.8% this year.

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