Published at 16:17 (GMT) 05 Nov

EURUSD

MXN is underperforming the region again with large banks selling the peso to balance positions. While it may look like a coincidence, Fin Min Carstens declarations on the fiscal reform should not be the cause for the sell off as it is saying what the market already knew. That Mexico was hit by more factors than the global recession, including the fall in oil production. The estimate on tax revenues gains as more than 1% of the GDP is optimistic but just marginally. His assessment that using debt to cover the fiscal gap would have hurt Mexico is also correct because the market would have understood that the permanent fall in fiscal revenues needed to be covered not with debt but with another source of revenue. Carstens is obviously trying to defend a sub-par reform and given the forecasts for oil production, it is would not be a stretch to see another fiscal reform in 2-3 years time. That is the underlining reason for MXN under performance.