The Mexican Peso has had a strong year. Economists at ING analyze MXN outlook.
Banxico’s confidence in the disinflation process may encourage it to ease before the Fed
We still very much like the Peso and do not see a threat from elections next June. Indeed, the Mexican government does have the fiscal headroom to boost growth next year. We are starting to wonder, however, if Mexican authorities consider the MXN to be too strong.
It seems Banxico’s confidence in the disinflation process may encourage it to ease before the Fed after all. The ultimate landing path for the 11.25% policy rate may be somewhere in the 7-8% area, though we doubt Banxico would want to see the policy spread to the US narrow from its current 575 bps to inside of 400/425 bps. This potentially opens up 150 bps of easing pre-Fed. That would still leave MXN implied yields above 10% and if we are right with our call for a weaker Dollar next year, 16.50 levels for USD/MXN should be in reach.
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