Commerzbank analysts Michael Pfister and Norman Liebke forecast that the Mexican Peso (MXN) is likely to weaken against the US Dollar (USD) in the coming weeks, attributing this outlook to the Bank of Mexico's (Banxico) continued dovish monetary policy stance despite rising inflation risks [1]. The analysts note that policy rates are moving into expansionary territory, which is expected to put further pressure on the peso and cause the USD/MXN pair to drift higher as monetary policy regains market focus [1].
Since the start of the year, the Mexican peso has appreciated nearly 4% against the US dollar, maintaining levels similar to those seen before the June 2024 Mexican presidential election and prior to increased concerns about US-Mexico relations and constitutional amendments [1]. Despite this recent strength, Commerzbank highlights that Banxico's decision to cut rates by 25 basis points in March, against a backdrop of a divided economist consensus, has weighed on the peso [1].
The analysts expect another 25 basis point rate cut from Banxico this week, at a time when other central banks are anticipated to adopt more restrictive policies, further undermining the peso's performance [1]. Market expectations currently reflect the belief that Banxico will be unable to continue cutting rates and may be forced to raise them, with two rate hikes priced in over the next twelve months; however, Commerzbank remains skeptical that these hikes will materialize [1].
Commerzbank concludes that policymakers are contributing to the peso's weakness by persisting with rate cuts despite ongoing global uncertainties, such as tensions in the Middle East, and anticipates further MXN depreciation in the weeks ahead [1].
CONCLUSION
Commerzbank expects the Mexican peso to weaken further due to Banxico's dovish stance and anticipated rate cuts, even as other central banks turn more restrictive. Despite recent peso strength, analysts see continued downside risk for MXN, with market expectations for future rate hikes viewed skeptically by Commerzbank.