USD/MXN hits fresh weekly lows under 23.00 as Mexican peso soars.

The Mexican peso is the best performer among the most traded currencies on Thursday, extending the rally. The improvement in risk sentiment helped emerging markets assets. In Wall Street, equity prices continue on rally mode for the third day in a row. 

“Stocks are firmly higher near mid-session Thursday as investors weigh fiscal stimulus plans against a record initial jobless claims figure. Last night, the Senate unanimously passed a $2 trillion spending package to help citizens and businesses deal with the economic fallout from the coronavirus outbreak. The bill now moves to the House for a final vote before heading to President Trump”, resumed Wells Fargo analysts. 

The USD/MXN trader earlier as high at 24.25 and recently printed a fresh one-week low at 22.95. As of writing, it trades at 23.10, down 3.45% for the day and off 10% from Tuesday’s peak. 

Mexican outlook

Before the coronavirus, the Mexican economy was showing negative signals. The global activity index dropped 0.7% in January from a year earlier. “We anticipate an economic contraction of 4.5% in 2020 with a strong downward bias if measures are not taken soon to curb the contagion. If the epidemic has not been controlled before the summer, the contraction will be even greater”, explained BBVA analysts. They warn that the degree of uncertainty in which these projections are made is much greater than normal. 

According to BBVA economist, there is a need to quickly ease and adjust monetary policy, especially considering its lagged effects and thus, the forward-looking nature of monetary policy decisions. “The depreciation of the MXN should not stop the Central Bank to ease monetary policy. In fact, Banxico is already behind the curve. Liquidity measures should be implemented soon in order to prevent further tightening in financial conditions.”