By Anthony Harrup


MEXICO CITY--Mexico's peso ended 2023 with its best performance in decades, supported by siby high interest rates, record remittances from the U.S., robust foreign direct investment and export revenue.

The peso traded late Friday at 16.97 to the U.S. dollar, compared with 19.47 a year earlier. It was the peso's sharpest annual gain in percentage terms since the currency was allowed to float in the mid-1990s, Banco Base's Director of Analysis Gabriela Siller said in a report.

Among the world's principal currencies only the Colombian peso outperformed the Mexican currency last year, a gain of around 20%, she said.

Exports and remittances will likely continue favoring the Mexican peso in 2024, although there could be pressure on the currency if the Bank of Mexico starts cutting interest rates in the first quarter and the Federal Reserve decides to wait until the second quarter before easing, Siller said.

The Bank of Mexico has held its overnight interest-rate target at 11.25% since March, and is widely expected to start lowering it in the first quarter as inflation has eased steadily from its autumn 2022 highs.

While analysts see risks to the peso in the widening of next year's fiscal deficit in an election year, capital inflows associated with nearshoring, which involves companies expanding or moving production closer to the U.S., could be a source of strength.

"We would view the 19.00 area as much closer to fair value, but also fully recognize that the strong nearshoring flows could keep this currency relatively overvalued for some time to come," Jorge Amato, the head of Latin America investment strategy at Citi Global Wealth Investments, said in a report.

Local stocks also had a solid year as the benchmark IPC index ends 2023 with a nominal gain of 18% to 57386 points, 359 points shy of its record-high close of 57745 on Dec. 26.

Among the best performing stocks were industrial and retail conglomerate Grupo Carso, which more than doubled in price, and cement maker Cemex, which ended the year up 68%. Underperformers among market heavyweights included telecom concern America Movil, which closed the year down 11%, and retail leader Wal-Mart de Mexico, which rose 4.3%.


Write to Anthony Harrup at anthony.harrup@wsj.com


(END) Dow Jones Newswires

12-29-23 1752ET