Close this search box.

Explore the world.

Assess underlying market conditions and fundamentals in the world's major economies.


Stay ahead.

Follow the biggest stories in markets and economics in real time.


Get insight into the latest trends and developments in global currency markets with breaking news updates and research reports delivered right to your inbox.

After signing up, you will receive regular newsletters from Corpay, and may unsubscribe at any time. View Corpay’s Privacy Policy

Although core inflation remains stubbornly elevated in both the US and Mexico, the signs of an eventual decline are clearly evident.

Inflation is rolling over.

Core Consumer Price, % Annual Change

The Federal Reserve is on the verge of pausing - and ending - its rate hikes. This is impacting expectations for the Banco de Mexico.

Monetary tightening cycles are ending.

Cumulative change in Federal Funds Rate since initial increase, %

Central bankers in both countries are closely aligned on the need for a "higher for longer" policy stance - and although markets are pricing in modest cuts in the coming years, medium-term yields suggest that Mexico's carry advantage is expected to remain intact.

And policy rates are set to plateau.

Central bank policy rates, %

Mexico continues to offer some of the world's highest relative yields, and is ahead of its Latin American counterparts on a risk-adjusted basis as well.

Carry returns remain incredibly attractive.

12-month implied carry return, %

Although often considered an economic leftist and nationalist leader, Andrés Manuel López Obrador has proven more centrist than expected. Interventions in business transactions have been relatively sporadic and limited in scale, and battles with the Supreme Court have seen some de-escalation.

Political risk uncertainties have faded.

Economic Policy Uncertainty Index for Mexico, normalized to a mean of 100 from 1996 to 2016

Spectacular growth and a big rise in wages at the bottom end of the US income spectrum have generated enormous gains for workers - which have translated into a significant surge in remittances sent to Mexico.

Remittances have soared.

Remittances sent from workers outside Mexico, 12-month rolling sum, billions USD

Optimism around the prospect of a rebalancing in global trade flows - one which redirects activity toward geographically-proximate and geopolitically-aligned trading partners - has helped generate a surge in investment volumes.

Reshoring hopes are driving an investment surge.

Gross fixed investment, indexed to 100 in June 2013

Institutional weaknesses continue to limit Mexico's competitiveness relative to other manufacturing centres, particularly in Southeast Asia. The leadership's failure to materially lift the share of GDP deployed in research and development is likely to hinder the extent to which the country can climb the value chain. And external demand is likely to weaken as the US slows and tangible goods spending continues its decline.

Reshoring gains may be limited.

Share of US imports by country %

The peso's correlation with US equity markets implies that it should continue to gain as long as current momentum continues - but is exposed to a big selloff when this eventually reverses.

Volatility correlations represent a vulnerability.

30-day correlation, VIX and MXNUSD

Although surges in volatility have historically occurred throughout the annual calendar, the autumn and winter months are more prone to big shocks.

And seasonal patterns suggest trouble ahead.

Average daily VIX value by month, 1990 - 2022, and 2023

Consensus forecasts see a fall into the mid 18's by the middle of 2024, with declines progressing at a gradual pace in line with deteriorating fundamentals.

Forecasters expect smooth depreciation.

Estimated expiration range by confidence interval, USDMXN

Like other emerging market currencies, the peso tends to take the escalator up, and the elevator down. We suspect that a shock - if one comes - could trigger sharp downside.

History would suggest otherwise.

Year-to-date change in MXNUSD exchange rate %, adjusted for breaks
Risk Appetite Surges After Soft Inflation Data
US Inflation Eases, Supporting Rate Cut Expectations
Dollar Retreats Ahead of Inflation Print
Will the US CPI jolt markets?
Markets Hold Firm After Cautious Fedspeak
AUD/NZD - Diverging macro fundamentals