Societe Generale strategists anticipate that the central bank of Mexico (Banxico) will maintain its benchmark interest rate at 6.50% during its upcoming meeting on Thursday, with market attention focused on the accompanying statement, which could challenge current market expectations for 80 basis points of tightening over the next 12 months [1]. The strategists highlight that Federal Reserve policy remains a significant factor influencing the Mexican Peso, especially following the recent hawkish tilt in US monetary policy, which may impact Mexico as a key trading partner [1].
Political risk surrounding the United States-Mexico-Canada Agreement (USMCA) is also noted as a source of uncertainty. The US and Mexico have completed the second round of USMCA review talks, addressing issues such as agriculture, labor, environment, rules of origin, autos, steel, and aluminum [1]. While progress is described as steady, the main political risk is attributed to the US, with the agreement's future hanging in the balance ahead of the July 1 deadline. The pact could either be extended for 16 years or shift to annual reviews within a 10-year window [1].
In terms of market implications, Societe Generale observes that the USD/MXN currency pair retains an upside bias, with 17.50 identified as a key technical hurdle [1]. This suggests a bearish outlook for the Mexican Peso against the US Dollar in the near term, particularly as Banxico's policy stance and USMCA negotiations unfold.
CONCLUSION
The Mexican Peso is under pressure as Banxico is expected to hold rates steady and political risks around the USMCA persist. Market participants are watching for signals from Banxico's statement and developments in USMCA talks, with USD/MXN showing an upside bias and 17.50 as a key resistance level.