MEXICO CITY, Jan 30 (Reuters) - Mexico’s peso traded at its strongest level this year on Monday, backed by expectations that new U.S. trade policies may not hammer the country’s exports as badly as expected.
The peso gained over 1 percent against the dollar to trade at its strongest since Dec. 30 before slipping back to trade around 20.75 per dollar.
The currency has rallied even though Mexican-U.S. relations appeared to hit a low point last week after President Donald Trump insisted Mexico pay for a new border wall, pushing Mexico’s President Enrique Pena Nieto to cancel a U.S. trip.
Despite the disagreement, the peso has gained sharply, up about 4 percent since Wednesday after Trump also said that Mexico’s economic future was important to the United States.
The peso has hit a series of record lows since Trump’s election on concerns he could rip up a free trade deal with Mexico, which sends nearly 80 percent of its exports to its northern neighbor.
The peso broke well past the 21 per dollar level last week and cleared some key technical levels, but analysts warned the currency could quickly retreat again if U.S. and Mexican talks took a negative turn.
“If the peso is a barometer of expectations of the relationship, then last week was a good week because we saw a stronger peso,” Mexican Foreign Relations Minister Luis Videgaray said in an interview on Mexican TV.
“But there is a high degree of uncertainty about what our relationship will be with the United States, not just in financial markets, but in the national economy.”
Videgaray said dialogue with the Trump administration was ongoing and that further bilateral meetings could take place in the coming days.
Mexico’s central bank Chief Agustin Carstens said that the peso is “clearly undervalued” and that it could strengthen as the market gains more clarity on U.S.-Mexico trade talks, according to an interview with a German newspaper published on Monday. (Reporting by Michael O‘Boyle; Editing by Alan Crosby)