Market Analysis by Quasar Elizundia, Expert Research Strategist at Pepperstone
December 14, 2024 –
“The Mexican peso faces a challenging environment, marked by internal and external pressures that have limited its ability to define a clear trend against the US dollar. In recent sessions, the currency has remained within a tight range of 20.1 to 20.3 pesos per dollar, reflecting a relative balance amid increasing economic uncertainties.
One of the main factors affecting the peso is the expectation of a less accommodative monetary policy from the US Federal Reserve in 2025. This scenario has boosted Treasury bond yields, with the 10-year bond exceeding 4.3%. This increase strengthens the dollar’s appeal and puts additional pressure on emerging market currencies, such as the Mexican peso.
Additionally, recent trade data also influence the peso’s dynamics. US import prices rose 0.1% in November, with fuel being the primary driver of the increase. In bilateral trade, import prices from Mexico to the US increased by 0.3%, while export prices to Mexico fell by 1.1%. This could provide relief for Mexican inflation, although it also highlights certain challenges in export competitiveness.
Looking ahead, the performance of the Mexican peso will largely depend on key economic data to be released next week, such as retail sales and private spending in Mexico. Furthermore, expectations regarding monetary policy moves by both the Federal Reserve and the Bank of Mexico will be crucial. Currently, markets anticipate 25-basis-point cuts by both institutions, which could bring Banxico’s rate from 10.25% to 10% and the Fed’s rate from 4.75% to 4.5%.
In this context, the peso’s ability to maintain current levels or even appreciate will depend on how these factors evolve. Meanwhile, its performance will remain a key indicator for emerging markets, with significant implications for global investors seeking opportunities in a high-volatility and diverging-yield environment..”
Analysis by Quasar Elizundia, Expert Research Strategist – Pepperstone