Maintaining hope for Mexico, but confidence is cratering
Summary
Following elections in June we expressed optimism that the worst case scenario for Mexico would be avoided. We felt Mexican policymakers would not jeopardize investment grade sovereign credit ratings, inbound nearshoring-related investment, policymaking credibility as well as broader financial instability to implement more controversial reforms. Under those assumptions, we believed the Mexican peso selloff had overshot, and the peso would rally as political risk improved. As we highlighted in our September International Economic Outlook, our base case scenario for Mexico is still one driven by improving optimism and stability under Claudia Sheinbaum; however, we have become less confident in the peso's ability to recover. For the time being, we believe the Mexican peso can strengthen back toward MXN19.00, although multiple risks are on the immediate horizon. Should these risks start to unfold, triggers could be breached to the point where we adopt an outright pessimistic view on the Mexican peso and broader Mexican economy.
Author
Wells Fargo Research Team
Wells Fargo
