The Mexican peso (MXN) was one of the best performing currencies in 2022. The MXN is likely to hold firm in the short term, but Rabobank economists they expect the USD/MXN to reach 20.50 by the end of the year.
Support at 18.50 is likely to hold
“We disagree with the view that the Fed will cut rates this year, but in the near term, the market is unlikely to change its outlook. This is providing support to risk assets in general. As a result, we see likely “We expect the MXN to hold firm on a 1-3 month view, with the pair likely to hold below 19.80. That said, we see the 18.50 support likely to hold.”
“As we move into the middle of the year and the Fed funds ceiling has been reached, we expect the Fed to continue to tout the view that it will not cut rates this year.”
“We expect a true consumer-led US recession this year, but this recession is likely to be accompanied by a more robust labor market than in previous cycles. In our view, this creates a scenario where the Fed holds during the downturn. Risk assets are likely to take a hit when this becomes apparent to the market.”
“The MXN will be somewhat isolated as we expect a terminal rate of 10.75% in Mexico (one last 25bp hike on Feb 9), but a move towards 20.50 is highly likely.”
Source: Fx Street
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