ING analysts warn that the Mexican Peso is increasingly vulnerable to external shocks as Banxico signals a tolerance for currency depreciation to combat a negative output gap.
Banxico surprisingly voted 3-2 to cut its policy rate to 6.25%, narrowing the spread to the Fed to 225bp, the lowest in decades. The narrowing rate differential makes peso carry less attractive, and ING argues USD/MXN above 19 is more likely than not as Banxico is happy to let the peso drop.
Banxico cut its policy rate to 6.25% in a surprise 3-2 vote, narrowing the gap to Fed rates to just 225bp – the lowest in decades – while signalling it is not worried about the weaker peso fueling inflation.
ING's Chris Turner argues that a move in USD/MXN above 19 'seems more likely than not' given the peso's vulnerability to external risk.
The Mexican Peso faces renewed downward pressure after Banxico delivered a surprise 3-2 vote to cut its policy rate to 6.25%. This decision narrows the interest rate spread against the Federal Reserve to a multi-decade low of 225 basis points, signaling that policymakers are prioritizing weak domestic growth over currency stability.
Banxico cut its policy rate to 6.25% in a surprise 3-2 vote, narrowing the gap to Fed rates to just 225bp – the lowest in decades – while signalling it is not worried about the weaker peso fueling inflation.
ING's Chris Turner argues that a move in USD/MXN above 19 'seems more likely than not' given the peso's vulnerability to external risk.