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MXN

13 Jul 2023

Exogenous forces could collapse the carry trade.

Political uncertainty is growing ahead of the 2024 election, and the ruling Morena party may be tempted to deploy the public balance sheet in drumming up support – but the fiscal outlook should nonetheless remain far stronger than many of Mexico’s emerging market peers. Instead, we think the biggest threats to the peso’s current valuation could come from abroad. Renewed currency intervention – or a more hawkish reset in Japan’s monetary policy stance – could trigger a surge in the yen and squeeze traders with leveraged positions – forcing a selloff in the peso. Under another scenario, a pronounced downturn...

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06 Jul 2023

Unsurprising Fed minutes push yields higher

Odds on another rate hike at the Federal Reserve’s July meeting were left slightly higher yesterday after a record of June’s discussion showed officials were modestly more hawkish than expected. Staff forecasts pointed to a deceleration in growth and price pressures through the latter half of the year, and there was considerable uncertainty about where the cumulative effects of previous tightening efforts would appear, but “almost all” agreed that rates would need to climb further this year – and some favoured moving more quickly because “momentum in economic activity had been stronger than earlier anticipated and there were few clear signs that...

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23 Jun 2023

Mexican Peso Snapshot

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...

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23 Jun 2023

Risk appetite falls on accumulating evidence of global economic slowdown

The dollar is staging a broad-based recovery this morning after a raft of purchasing manager surveys showed activity slowing sharply across a range of global economies. Data published by S&P this morning provided evidence of decelerating growth in Australia, Japan, the UK and the euro area, with the all-important services sector joining manufacturing in showing signs of strain in every major country. In the euro area, the headline purchasing manager index dropped to 50.3 in June from 52.5 in the prior month, narrowly avoiding contraction and hitting a five-month low as the strike-plagued French economy deteriorated and the German factory sector remained depressed. European yields fell...

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22 Jun 2023

Markets weaken as Bank of England delivers another hawkish surprise

The British pound is consolidating gains after the Bank of England joined its Commonwealth counterparts in wrongfooting markets with a bigger-than-expected half-point hike at this morning’s meeting. Responding to “material news” of an acceleration in wages and consumer prices, the Monetary Policy Committee voted seven to two in favour of raising rates to the highest levels since 2008, with Governor Bailey saying “Bringing inflation down is our absolute priority”. From today’s 5 percent, traders now expect the Bank Rate to peak above 6 percent in early 2024. This should, in theory, generate a lot of carry support for the pound – speculators...

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