Mexico Peso Bullish Rally To Lose Steam

last updated on

Mexico Peso Bullish Rally To Lose Steam

Mexico Peso (Mxn) Bullish Rally To Lose Steam In 2024

According to a poll of economists, the bullish rally of the MXN against the USD will likely end in 2024. The reason behind this sudden shift is that the policy adopted by Banxico is more accommodating than that of other banks.

Simply put, the spread that made it attractive to buy MXN against other currencies continues to thin out!

Last year, MXN closed one of its best years against the greenback. Such a good performance had not been seen in almost 30 years, which suggests that the MXN rally was one of its own.

11.25% Interest Rate Set By Banxico

The reason behind the surge of the MXN was an interest rate of 11.25% set by the Banxico. Such a high interest rate led to an inflow of funds into the MXN, which pushed it higher.

The MXN/USD rate was 18 by the end of 2023, which has now moved to 17 with a loss of -5.4%.

In 2024, many central banks are expected to lower rates & Mexico will be no exception. Even the USA is likely to go this route, which makes it an even more exciting equation.

If the rate difference between the USD and MXN becomes very thin, the MXN rally will end. Similarly, if Banxico takes a fast approach to rate cuts compared to the Fed, it will also be MXN bearish.

For now, the Fed's rate is 5.25% to 5.50% while Banxico's rate is 11.25%, which means the carry trade investors favour the USD/MXN.

As for when Banxico's rate cut will materialize, experts are hinting at Q1 2024. On the US side, there needs to be more clarity on the monetary policy, which puts the economy at downside risk. If the economy fails to pace, what benefit will the USA achieve from a stronger US dollar? That's a question that the Fed will need to answer quickly!

Trending Stories