The Mexican peso has ended 2023 with its most robust performance against the US dollar in over 30 years. Termed the "super peso" by President Andres Manuel Lopez Obrador, the currency closed the year at 16.95 units to the dollar, achieving a cumulative gain of nearly 13 per cent, marking its strongest annual performance since 1989.

This unexpected surge positions the Mexican peso among the top-performing currencies globally, trailing only behind the Colombian peso. However, analysts are cautious about the sustainability of these gains in 2024, citing expectations of the central bank lowering the record-high borrowing costs that have contributed to the peso's ascent.

Jonathan Heath, Deputy Governor at the Bank of Mexico, acknowledged the peso's unprecedented appreciation in a social media post, emphasizing the unpredictability of this year's performance.

The peso's surge is attributed to a combination of factors, including substantial capital inflows from abroad and a restrictive monetary policy implemented by the central bank since June 2021. The bank's resolute stance aimed at addressing post-pandemic inflation has contributed to the peso's strength.

Despite the celebratory tone surrounding the peso's performance, concerns are raised about the potential negative impacts on Mexico's export competitiveness and the purchasing power of remittances, which are integral to the country's economy.

Looking ahead to 2024, the landscape for the peso appears uncertain. The central bank, known as Banxico, has maintained its benchmark interest rate at a record-high 11.25 per cent since March but is anticipated to initiate rate cuts in the first quarter of the coming year. Analysts suggest that such cuts could lead to a weakening of the peso, potentially surpassing 18 pesos per dollar.

Furthermore, the upcoming presidential elections in both Mexico and the United States are expected to inject volatility into the peso's trajectory. Humberto Calzada, Chief Economist at Rankia Latinoamerica, highlights the potential impact of these elections on the peso's outlook, indicating a period of increased uncertainty and fluctuations in the currency's value in the coming year.

(With Reuters inputs)