Mexico’s peso is facing a complex landscape, balancing between a relatively stable economy and political doubts. Despite the minor 1% year-to-date depreciation, the currency is expected to experience a further slight drop in the medium-term. The delayed start of monetary policy easing in the United States and escalating global volatility due to tensions in the Middle East are contributing to the currency’s challenges.
Experts’ Predictions
In a recent poll of foreign exchange experts conducted by Reuters, the median estimate suggests that the peso could shed an additional 2.6% over the next 12 months. This would bring the exchange rate to 17.59 per U.S. dollar from the current 17.13. While opinions vary among respondents, the most conservative forecast sits at 18.70 per dollar, with the most optimistic at 16.60.
Speculators have been reducing their “carry trade” positions, resulting in Mexico’s peso experiencing modest losses compared to other Latin American currencies. Despite the Mexican central bank’s decision to lower its benchmark rate in March to 11%, policymakers are likely to maintain this level for a longer period than what markets anticipate. Additionally, inflation remains a hurdle for economic growth in Mexico.
The upcoming presidential vote in Mexico on June 2 adds another layer of uncertainty to the peso’s outlook. Claudia Sheinbaum, the ruling party candidate and former Mexico City mayor, is currently leading in the polls. However, concerns linger about her approach to addressing fiscal deficits if elected. The outcome of the Mexican elections, as well as the U.S. election in November, create significant uncertainty for the peso.
In comparison to Brazil, Mexico’s peso is expected to face a more challenging path. While the real is forecasted to gain 3.8% against the dollar in the next 12 months, highlighting Brazil’s fiscal troubles, Mexico’s peso is grappling with its unique set of obstacles. Despite the peso’s underperformance, experts believe that Mexico could benefit from its close ties to the United States and ongoing growth prospects.
Mexico’s peso is treading a fine line between economic stability and political uncertainties. The currency is expected to face further depreciation in the coming months, influenced by global factors and internal challenges. Analysts emphasize the importance of monitoring the evolving situation, especially with the looming elections in Mexico and the United States. The peso’s resilience will be tested, and its ability to weather the storm will depend on a combination of economic policies, market sentiment, and political developments.
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