Mexican Peso: Policy uncertainty caps nearshoring upside – Societe Generale

Dev Ashish at Societe Generale notes that MXN price action was relatively muted after the United States-Mexico-Canada Agreement (USMCA) extension decision, indicating investors largely expected the outcome. Ashish stresses that while trade flows and supply chains should remain intact near term, autos, metals and manufacturing projects linked to nearshoring may be postponed as firms await clarity on rules of origin and content thresholds.

Muted FX reaction but growth risks

"The US decision not to proceed with a 16-year extension of the USMCA, opting instead for annual reviews through 2036, extends investment uncertainty in Mexico, even though trade flows are unlikely to be materially affected in the near term."

"Markets have largely priced in this outcome. MXN price action following the announcement has been relatively muted, suggesting investors broadly expected the US to withhold an immediate extension."

"The absence of new tariff measures means trade flows and supply chains should remain largely unaffected in the near term, although future tariff threats cannot be entirely ruled out."

"Autos, metals, manufacturing and nearshoring-related projects could face postponements as firms wait for greater clarity on future rules-of-origin requirements and North American content thresholds."

"Broadly, the situation can be best characterized as an investment- and growth-negative uncertainty shock rather than a trade-crisis shock."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)