USD/MXN to enjoy substantial gains toward 21.30 by mid-2022 – SocGen

The Bank of Mexico, partly concerned about the taper tantrum but mostly due to higher near-term inflationary pressure, has begun to tighten long before the recovery is complete. Strategists at Société Générale expect the USD/MXN to advance nicely towards 21.30 by June 2022.

MXN and bond yields face likely tightening of global financial conditions

“The growth outlook still faces numerous downside risks and, although the policy buffer remains substantial, some financial market withdrawal from the EM is probably the base-case scenario when Fed tapering comes into force.”

“The Bank of Mexico will likely tighten further, although the medium-term inflation outlook is broadly stable (despite upside risks).”

“Against this backdrop, our EM strategists expect MXN to weaken to 21.30 and long-term bond yields to rise to 7.50 by end of 1H22. Additional pressure on currency and bond yields is likely through 2023.”