Compared to other emerging market currencies, the peso has held up quite well against the dollar. Today Banxico is expected to raise rates by 75 basis points. However, it seems that the market has already discounted a lot. Thus, the peso is unlikely to benefit from a hawkish central bank, report economists at Commerzbank.
Upside risks for USD/MXN
“Analysts surveyed by Bloomberg seem to agree that the Mexican central bank, Banxico, will raise its key rate for the third consecutive time by 75 basis points, to 9.25%, and it is also fully priced into the market. prices also points to a statement with an aggressive tone in which Banxico signals new rate hikes.”
“We assume that Banxico will continue its tightening course. It probably won’t want its speed to fall below that of the Fed to support the peso, as continued peso weakness would further intensify price pressure. The market seems to expect that key rates reach 10.4% by the end of the year. In general, the market seems to have priced in a lot, so that only a surprise from Banxico could move the peso significantly.”
“The expected momentum is likely to be dampened as a result of the expected recession in the US. The bickering over the trade agreement between the US, Canada and Mexico, the so-called USMCA, over Mexico’s energy policy is also a fly behind the ear.”
“In the current market environment, with the continued strength of the dollar, we therefore continue to see upside risks to USD/MXN..”
Source: Fx Street