USD/MXN: Mexican Peso might weaken in the next few months – MUFG

USD/MXN fell in February from 17.17 to 17.06. Economists at MUFG Bank analyze Mexican Peso’s outlook.

MXN weakening path ahead

The MXN might weaken in the next few months on the back of a dovish tone of Banxico minutes and weaker-than-expected industrial production and retail sales that could drive a Banxico rate cut coming earlier than the Fed, although some Banxico members are willing to synchronize its decision with the Fed. 

From June onwards, the MXN tends to be more strongly influenced by expectations regarding the new government and its policies. Eurasia judges that Ms. Claudia Sheinbaum has an 80% chance to become the next president after the 2nd June election. Morena party tends to maintain the majority at both Lower House and Senate, as well as the majority of state governors. However, the government coalition might not get a two-thirds majority in Congress, thus having to negotiate with the opposition to pass key reforms. 

The US election in November and potential immigration and trade policy changes could weigh on Mexico’s economy. In light of those risks, we expect a gradually weaker MXN.