The Dollar's Fall and its Impact on Global Markets and Logistics

Global Effects of the Dollar's Fall Against the Mexican Peso: Changes in Markets and Logistics The recent fall of the US dollar (USD) against the Mexican peso (MXN), reaching levels close to 18.50, has generated a series of significant effects on global markets and international logistics. This phenomenon, driven by expectations of an interest rate cut by the US Federal Reserve (Fed), is shaping the economic landscape in ways that require detailed attention. Impact on Global Financial Markets The US dollar has long been the reference currency in international markets, used for most commercial and financial transactions. Therefore, any significant fluctuation in its value has immediate impact on other markets: Emerging Markets: The dollar's fall usually strengthens emerging market currencies, like the Mexican peso, which may seem positive in terms of purchasing power. However, it can also lead to excessive volatility, affecting foreign investments and exports, by making those countries' products more expensive in the international market. For Mexico, a stronger peso could hinder the competitiveness of its exports, especially in its largest market, the United States. Commodities: Since many commodities, like oil and metals, are quoted in dollars, a decrease in the dollar's value can make these products cheaper for countries using other currencies. This can lead to increased demand but also greater inflationary pressure in global markets, affecting countries like Mexico that depend on oil exports. Impact on Global Logistics Logistics, as one of the pillars of global trade, is directly affected by changes in the dollar's value. Here are some of the most notable effects. The dollar's value has direct impact on fuel costs, a key component in transportation costs. A weaker dollar can lead to increased oil prices, which in turn raises transportation costs and affects the entire supply chain. This is particularly relevant for Mexico, an important transit point for trade between the United States and Latin America, and which depends largely on road transport. Demand Fluctuations: The dollar's fall can alter international demand dynamics. A weak dollar can make US products more attractive to international buyers, potentially increasing demand and overloading logistics capacities. On the other hand, imported products to the United States may become more expensive, reducing demand and, consequently, transportation volume. International Contracts and Payments: In the logistics sector, many contracts and payments are denominated in dollars. A fall in the dollar's value can complicate contractual negotiations and affect the profitability of logistics companies operating internationally, including those in Mexico that handle large volumes of cross-border trade with the United States. Trade Wars and Geopolitical Tensions Growing trade wars and geopolitical tensions, especially between the United States and China, could also threaten the dollar. If conflicts intensify and lead to a decoupling of the world's two largest economies, efforts to reduce dollar dependence could accelerate. China, as the largest creditor and trading partner of the United States, has considerable power. In the worst case, China could dispose of its US Treasury bond holdings, which exceed one trillion dollars, potentially generating shocks in global markets. However, this would also destroy the value of China's own reserves and its export-driven economy, making this measure extremely risky. More realistically, trade wars could push China and other nations to accelerate the development of alternative commercial and financial channels that avoid the dollar. For example, China's Cross-Border Interbank Payment System (CIPS) seeks to internationalize the renminbi and reduce its dependence on dollar transactions. For Mexico, these tensions can have mixed effects. As a member of the United States-Mexico-Canada Agreement (USMCA), Mexico is strongly linked to the US economy. If trade tensions escalate, Mexico could benefit in the short term from increased company relocation seeking to avoid tariffs between the US and China, but could also face challenges if global supply chains are disrupted. Impact of the Dollar's Global "Weapon" The dollar has become, according to some, the United States' "weapon of choice" to promote political objectives and preserve its global position. Historically, the United States has used dollar dominance to apply its policies and laws extraterritorially, undermine transactions contrary to its interests (even if legal in other countries), exclude parties from dollar-based payment systems, and freeze or confiscate foreign dollar assets. This approach risks making foreign institutions more reluctant to transact in dollars or maintain dollar assets. Some countries are already reducing their US Treasury bond holdings, favoring alternative assets and trade agreements. A shift away from the dollar could undermine the US ability to finance deficits, leading to higher interest rates and dollar devaluation. Impact on Mexico and the Regional Economy Mexico, being one of the United States' main trading partners, closely feels the effects of any fluctuation in the dollar's value. A weak dollar could mean greater competition for Mexican exports, but could also make Mexican products more affordable for US consumers, potentially stimulating exports in some sectors. Additionally, since much of Mexico's external debt is denominated in dollars, a weaker dollar could reduce the cost of servicing that debt, relieving some fiscal pressures. However, exchange rate volatility could also generate uncertainty for companies operating on both sides of the border, especially in the manufacturing and automotive industries, where profit margins are narrow. While scenarios exist that could trigger a sudden crisis for the dollar, such as the dual threat of high inflation and high debt, dollar collapse remains highly unlikely. The necessary precursors for collapse are scarce, and both exporting nations like China, Japan, and Mexico don't want dollar collapse due to the importance of the US as a customer. The dollar remains the reference currency in global trade, and although some countries seek to reduce their dependence, no significant replacement is visible on the horizon. In a constantly changing world, the dollar remains a crucial part of the international monetary system, and any major change would require unprecedented global realignment.