MEXICO CITY (Reuters) – The Mexican peso is closing out 2022 at a 10-year high, but is expected to end 2023 with the Bank of Mexico rate hike cycle expected to end and a possible recession. may cancel out that increase. The United States, our top trading partner.
The peso returned to pre-pandemic levels last month and is up more than 5% against the US dollar in 2022, making it one of the best performing global currencies alongside the Brazilian real.
However, the peso has risen as markets expect the massive capital inflows into Mexico in recent months could soon begin to slow, attracted by the Bank of Mexico’s restrictive monetary policy stance. ‘s impressive rise could come to an end.
Bansico, better known as the central bank, has been raising its benchmark interest rate to stem inflation since June 2021, raising it to a record 10.5% at its last policy meeting.
In the coming months, we expect Bansico to end its rate-hiking cycle and likely decouple from the US Federal Reserve, which is expected to continue to hike rates. That could narrow interest rate differentials and trigger capital outflows.
“The carry trade, a phenomenon that has benefitted this year (the peso), is likely to calm down a bit,” CI Banco analyst James Salazar said. A carry trade is a trading strategy that takes advantage of the yield differential between Mexico and other countries.
The strength of the peso, which President Andrés Manuel López Obrador often boasts as one of the government’s great achievements, has also benefited from strong remittance inflows, export growth and foreign direct investment.
Concerns over US recession and trade disputes have caught Mexico caught in the US and Canada over Lopez Obrador’s energy policy. This has been called nationalist by critics, clouding the outlook for the peso.
Banco Base said that “consultations in the framework of the USMCA (Trade Agreement) could raise awareness of the risks and impose measures against Mexico.”
Traders at the Chicago Mercantile Exchange, considered a forerunner of market sentiment, have begun betting that the peso will begin to fall.
Reported by Noe Torres. By Anthony Esposito.Editing by Josie Kao
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