Societe Generale’s Kenneth Broux highlights that Latin American currencies, including the Mexican Peso (MXN) and Brazilian Real (BRL), have weakened as the US Dollar rebounds. The USD/MXN and USD/BRL currency pairs have broken above key resistance levels of 17.50 and 5.20, respectively, for the first time in nearly three months. The next technical upside targets are identified near the 200-day moving averages at 17.78 for USD/MXN and 5.25 for USD/BRL [1].
The report notes that the Bank of Mexico (Banxico) is widely expected to keep its policy rate unchanged at 6.50% at its upcoming meeting. Banxico had previously signaled that its policy easing cycle is effectively over [1]. Money markets are currently pricing in approximately 70 basis points of tightening over the next 12 months, as market participants anticipate that Banxico will need to maintain a policy buffer relative to the US Federal Reserve, especially if the Fed tightens further [1].
The spread between Banxico’s rate and the upper boundary of the US Federal Funds target range is now 275 basis points, the lowest in a decade and significantly below the median spread of around 550 basis points. This narrowing gap underscores the pressure on Banxico to consider tightening in order to preserve the attractiveness of the peso [1]. Societe Generale warns that any attempt by Banxico to downplay future tightening could reduce dip-buying interest in the peso [1].
CONCLUSION
The Mexican Peso has come under pressure as the US Dollar strengthens and Banxico is expected to hold rates steady. With markets pricing in further tightening and the policy rate gap at a decade low, the peso’s outlook remains sensitive to both Banxico’s stance and potential Fed moves.