Mexico's peso will only weaken only modestly in 2023, according to analysts

In this picture illustration, a twenty peso coin is seen.

BUENOS AIRES Reuters poll showed that the Mexican peso will weaken only modestly in 2023 because of a gathering economic slowdown, as confidence in the country's moderate policies and manageable debt metrics remains high.

Mexico's currency is close to its strongest level since the outbreak of the coronaviruses, having appreciated 2.2% from the beginning of the fourth quarter to 19.73 per U.S. dollar on Monday.

In a year, the peso is seen changing hands at 20.16 per U.S. dollar, according to the median estimate of 22 strategists polled Dec. 1 -- 5, 2.2% softer than this week but within its 18.0 -- 22.0 range of the last five years, excluding a drop in early 2020.

The central bank of Banxico is known as Banxico's adapting to the U.S. Federal Reserve's Anti-Inflation strategy and the deteriorating economy are the main challenges for the Mexican currency in the medium-term.

According to Ricardo Aguilar, chief economist at Invex, said that the U.S. recession will affect Mexico's growth and USD flows into the economy could fall, and that the peso could drop to 21.15 per U.S. dollar in a year.

The conservative approach of both Banxico and President Andres Manuel Lopez Obrador's government continues to support financial sentiment in Mexico, with Fitch Ratings highlighting its prudent policies last month.

Since mid- 2021, the Mexican central bank has increased its key interest rate by 600 basis points to 10.0%. At least one more increase is in the offing, according to the governor of Banxico, Victoria Rodriguez.

The Brazilian real has gained 5.5% year to date, while the peso is up 3.9% year to date.

In the poll, Brazil's currency was projected to strengthen 2.1% from the previous week's levels to 5.17 per U.S. dollar in a year.

According to last month's Reuters foreign exchange survey, traders are cautious as Brazil's president-elect Luiz Inacio Lula da Silva takes his time to decide on his cabinet, contrary to some extreme market views.

The central bank may take a more stricter approach to policy that may lead to tighter policy than previously thought, despite renewed inflation worries and calls for more spending.