He Mexican peso has had a strong year. ING economists analyze the prospects for the MXN.
Banxico’s confidence in the disinflation process may encourage it to relax before the Fed
We still really like the peso and we do not see a threat in the elections next June. In fact, the Mexican government has fiscal room to boost growth next year. However, we are beginning to wonder if the Mexican authorities consider the MXN too strong.
It seems that Banxico’s confidence in the disinflation process could encourage it to relax the exchange rate before the Fed. Ultimately, the monetary policy rate of 11.25% could be around 7-8%, although we doubt that Banxico wants the monetary policy differential with the US to be reduced from the current 575 basis points to 400/425 basis points. This could open up 150 basis points of easing ahead of the Fed. This would still leave implied MXN yields above 10% and, if we are correct with our forecast for a weaker Dollar next year, 16.50 levels for USD/MXN should be within reach.
Source: Fx Street

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