The exchange rate between the U.S. dollar (USD) and the Mexican peso (MXN) is a frequently searched topic for travelers and businesses conducting cross-border transactions between the United States and Mexico. This comprehensive guide provides an in-depth explanation of the USD to MXN exchange rate, including its history, how it is determined, factors that impact it, and tips for getting the best exchange rate.
An Overview of the USD/MXN Exchange Rate
The USD/MXN exchange rate refers to how many Mexican pesos (MXN) equal one U.S. dollar (USD). Like all currency exchange rates, it fluctuates daily based on the relative value and demand for each currency on global markets.
As of October 16, 2023, the exchange rate is:
1 USD = 19.86 MXN
This means one U.S. dollar can be exchanged for about 19.86 Mexican pesos. The peso amount may vary slightly from bank to bank and location to location due to transaction fees and other factors.
Over the past decade, the exchange rate has ranged between:
- Highest: 22.369 pesos per 1 USD on April 1, 2020
- Lowest: 12.636 pesos per 1 USD on January 18, 2017
So how does this exchange rate get determined on a daily basis? Read on to understand the factors at play.
What Impacts the USD/MXN Exchange Rate?
Currency exchange rates are driven by the forces of supply and demand. Several economic factors can cause the supply and demand for the USD and MXN to shift, impacting their relative value.
Differentials in Inflation Rates
- Higher inflation in Mexico compared to the U.S. decreases the value of the peso over time, resulting in more pesos needed to buy one dollar.
- Mexico’s central bank targets an inflation rate of 3%, while the U.S. Federal Reserve aims for 2%. This 1% difference causes gradual peso devaluation.
Interest Rate Differentials
- Higher interest rates in the U.S. versus Mexico increase demand for USD-denominated assets, driving up the dollar’s value.
- As of October 2022, the U.S. Federal Funds rate stands at 3.00-3.25%, while Mexico’s benchmark interest rate is 9.25%.
Economic Growth Prospects
- Stronger economic growth in the U.S. compared to Mexico increases demand for the dollar.
- U.S. GDP growth averaged 2.5% over the past 5 years, higher than Mexico’s 1.2% average.
Global Oil Prices
- As a major oil exporting nation, higher global crude prices increase demand for the Mexican peso.
- The peso tends to appreciate when oil prices rise.
Relative Government Debt Levels
- Rising government debt in Mexico versus the U.S. can weaken the peso’s value.
- Mexico’s debt-to-GDP ratio stands at 70% compared to 129% in the U.S.
Political and Economic Stability
- Periods of political uncertainty or instability in Mexico undermine investor confidence in the peso.
In summary, the peso tends to depreciate against the dollar over time due to higher Mexican inflation and faster U.S. economic growth. Meanwhile, rising oil prices, higher Mexican interest rates, and improving economic fundamentals in Mexico can cause the peso to appreciate.
The History of the USD/MXN Exchange Rate
To better understand the dynamics impacting the USD/MXN exchange rate, let’s look at some key events and developments between the two currencies over the past decades:
1976 – Mexico transitioned to a floating exchange rate system, allowing the peso to fluctuate based on supply and demand. It was fixed at 12.50 MXN per 1 USD.
1982 – Mexico suffered a debt crisis. The peso plunged over 300% against the dollar from 1978 to 1982 amid capital outflows.
1988 – The peso rebounded to 2.65 per dollar following years of high inflation and economic instability in Mexico.
1994 – Mexico underwent a severe economic crisis known as the Tequila Crisis. The peso lost over 50% of its value from 1994 to 1996.
2001 – The exchange rate returned to pre-crisis levels below 10 pesos per dollar supported by rising oil exports.
2008 – The global financial crisis caused investors to sell emerging market assets. The peso declined from 10.90 to 15.40 pesos per dollar.
2017 – USD/MXN hit a historic low below 18 on stronger Mexican fundamentals and U.S. political uncertainty.
2020 – The Covid-19 recession caused the peso to weaken past 25 per dollar before recovering to around 20.
2022 – High U.S. interest rates drive the exchange rate back up over 20 pesos per dollar.
Currency crises, oil shocks, and diverging economic growth have led to significant volatility in the exchange rate over the decades. Understanding this history provides helpful context on the macroeconomic factors impacting the relative value between the two currencies.
Who Determines the Daily Exchange Rate?
Given constantly changing economic conditions, how does the USD/MXN exchange rate get set on a day-to-day basis?
There is no one official exchange rate. Rather, many different parties determine reference exchange rates:
- Banks and foreign exchange providers – Major banks like Citi, HSBC, and Santander provide quotes on wholesale interbank FX rates which serve as global benchmark rates. Retail banks and money transfer services use these wholesale rates and add a markup to determine their offered customer exchange rates.
- Central banks – The Mexican central bank (Banco de México) and the U.S. Federal Reserve calculate and publish daily reference exchange rates based on the wholesale interbank market rates.
- Thomson Reuters and Bloomberg – These financial data providers calculate and publish the USD/MXN “fixing rate” at 4 pm London time daily based on quotes from multinational banks. This serves as a global benchmark rate.
- Currency brokers – Brokers providing direct access to the interbank foreign exchange market have real-time exchange rates fluctuating by the second.
So in summary, competitive trading between large banks, central bank benchmarks, and real-time exchange platforms all contribute to determining the prevailing USD/MXN rate at any given time.
5 Tips for Getting the Best USD/MXN Exchange Rate
When transferring money between the United States and Mexico, leverage these tips to get optimal exchange rates and lower transaction fees:
1. Use a No-Fee Foreign Exchange Brokerage
Avoid bank markups by using an FX provider charging no transfer fees with wholesale, interbank rates. Recommended platforms include OFX, WorldFirst, and Currencies Direct.
2. Time Payments Around Rate Spikes
Check exchange rate charts to time transfers when the peso strengthens. Pay attention to daily fixing rates at 4 pm London time.
3. Wire Money Instead of Paying by Card
Wiring USD provides better rates compared to paying in one currency with a foreign transaction fee card.
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4. Hold Funds in Stable Currencies
Park funds in USD instead of MXN if expecting the peso to decline further. This prevents conversion at lower rates.
5. Set Up Rate Alerts
Use broker trading platforms to set up rate alerts and get notifications when the peso hits your desired conversion level.
Avoiding bank markups, understanding market movements, and shopping providers allows one to optimize exchange rates for USD-MXN transfers.
Current Exchange Rate Outlook
Based on the above factors influencing the supply and demand for the dollar versus the peso, here is an outlook for the USD/MXN exchange rate for the remainder of 2023:
- The peso is expected to remain volatile near current levels around 19-20 per USD.
- Higher inflation and interest rates in Mexico point to gradual peso weakness.
- But global recession concerns could dampen rate hikes, benefiting the peso.
- U.S. political uncertainty leading up to 2024 elections could also pressure the dollar down.
- Any major risk-off events negatively impacting emerging markets would likely weaken the peso.
- If oil prices rise again, the peso could appreciate back below 19 per dollar.
In summary, while peso depreciation is likely over the medium term, periods of volatility in both directions can be expected based on various economic and political developments. Stay updated on factors driving the relative value of both currencies.
Frequently Asked Questions
What is the current USD to MXN exchange rate?
- As of October 16, 2023, the exchange rate is 1 USD = 19.86 MXN. This means one U.S. dollar equals about 19.86 Mexican pesos. The rate fluctuates daily based on the relative supply and demand for each currency.
Why does the USD to MXN exchange rate change?
- Currency exchange rates change based on macroeconomic factors affecting the relative value and demand for each currency. Key drivers include relative inflation and interest rates, economic growth, oil prices, government debt levels, and political stability. A stronger U.S. economy typically increases USD demand, while higher oil prices boost the peso.
How can I get the best exchange rate?
- Tips for getting optimal exchange rates include using low-cost forex brokers instead of bank wire transfers, timing payments around rate spikes, holding funds in stable currencies, setting rate alerts, and avoiding credit card foreign transaction fees. Shopping providers for the best real-time rate saves significantly on cross-border transfers.
Can the peso appreciate against the dollar?
- Yes, the peso can and does frequently appreciate against the U.S. dollar during periods when Mexican economic fundamentals strengthen or the dollar weakens due to U.S. political uncertainty or other global factors. The peso has gained against the dollar during past oil price booms and following U.S. election cycles.
Is the peso expected to weaken or strengthen?
- While the peso historically declines against the USD over the long run, short-term strength or weakness depends on relative inflation and growth rates. Consensus forecasts expect moderate peso depreciation driven by higher inflation and interest rates in Mexico versus the United States. But periods of volatility can be expected in both directions.
Conclusion
The USD/MXN exchange rate fluctuates daily based on the relative economic conditions, interest rates, and currency flows between the United States and Mexico. Understanding the dynamics that impact the supply and demand for each currency allows individuals and businesses to better track and forecast exchange rate movements when transferring money or investing across the border.
By monitoring factors like oil prices, inflation, GDP growth, and relative government policies, one can adjust the timing of cross-border payments and holdings to maximize the conversion rate. Taking advantage of real-time wholesale forex rates and minimizing transaction fees also allows consumers and companies save significantly on exchanges between dollars and pesos.
