The Mexican peso turned positive against its US counterpart in the middle of the trading week, buoyed by better-than-expected economic growth in the first quarter. The Mexican economy had been battered by the coronavirus pandemic, even though the country did not impose strict regulations as other nations had done. With the greenback on the decline, can the peso maintain the momentum heading into the second half of 2021?

In the January-to-March period, the gross domestic product (GDP) growth rate advanced 0.8%, beating the median estimate of 0.6%. The second-largest Latin American market reported growth in industry, manufacturing, and agriculture. This also represented the third consecutive quarter-over-quarter gain.

On an annualised basis, the GDP growth rate contracted 3.6%, matching market forecasts. This was also an improvement from the 4.5% year-over-year drop in the fourth quarter.

Economic activity also rebounded in March, advancing 2.6% from the previous month. Economic activity also rose 0.8% year-over-year in March, beating economists’ expectations of -0.2%.

It has been a critical week of data for the Mexican economy.

On Monday, the government reported that the mid-month inflation rate was relatively unchanged in May, while the annual inflation rate slipped to 5.8%. The balance of trade turned from a deficit in March to a surplus in April, clocking in at $1.501 billion. The current account deficit totaled -$5.135 billion in the first quarter.

Overall, Mexico is recovering from the sharpest economic contraction since the 1930s. But market analysts are still urging investors to be cautious because a third wave of COVID-19 could hinder the country’s resuscitation, even as fiscal policy tightens.

“Fiscal policy remains very tight, and the possibility of a third wave is still very real given the sluggish pace of the vaccination campaign,” Carlos Capistran, chief economist for Canada and Mexico at Bank of America Corp.

The bond market was mostly in the green midweek, with the benchmark 10-year yield up 0.05% to 6.889%. The one-year bill added 0.00261% to 5.026%, while the 30-year bond shed 0.0029% to 7.854%.

The USD/MXN currency pair fell 0.22% to 19.8677, from an opening of 19.9150, at 14:15 GMT on Wednesday. The EUR/MXN declined 0.44% to 24.3005, from an opening of 24.4009.