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Superpeso develops a fear of flying

Mexico

Not long ago Mexico's currency was dubbed the superpeso. One of the world's strongest performers in 2001, it seemed almost invincible, ending the year 5% stronger against the dollar than in January 2001.


This year, too, the peso continued to defy expectations of a weakening. While currency traders predicted a fall to near 11 to the US dollar in the face of a global recession, the peso remained steady at around nine.


But by the beginning of July the peso had lost some of its ability to soar. Between April and July 2, it fell by almost 10% to 9.98 to the dollar.


Analysts attribute the peso's sudden dive partly to a weakening of the dollar against the euro, as well as investor concern about a stalemate in Mexico's congress on key reforms such as that of the energy sector. The largely gas-powered electricity generation industry needs to double its capacity by 2008, energy analysts say.


But some say that the market had simply misjudged the peso's strength. "The correction was long overdue," says Miguel Palomino, currency analyst at Merrill Lynch in New York. "The peso is a good currency backed by a strong economy.





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