Chris Turner at ING highlights that the Mexican Peso has been the weakest emerging market currency since early September, hurt by dovish Banxico rhetoric and narrowing policy spreads versus the Federal Reserve. Without a hawkish surprise at the 5 November meeting, he expects MXN to remain vulnerable, with IMF-flagged US tech exposure adding pressure and USD/MXN seen heading toward the 19.00–19.10 area in coming weeks.

Policy spread compression weighs on Peso

"Since US rates exploded higher at the start of September, the Mexican peso is by far the worst-performing EM currency. It is close to 8% weaker versus the dollar. The next worst currency is the Romanian leu at around 4%."

"The peso has been hit hard by dovish Banxico rhetoric, outlining that it did not plan to mechanically track the Fed with rate hikes. Should Banxico fail to match a presumed rate hike from the Fed in December, the Banxico-Fed policy rate spread will reach the narrowest on record and leave the peso exposed at a difficult time for risk assets."

"Barring a hawkish surprise from Banxico at its 5 November meeting, we expect the peso to remain vulnerable."

"We note that in the IMF financial stability report, Mexico was seen to have the near entirety of its foreign portfolio investments in US securities, which the IMF saw as AI-chasing behaviour."

"Unrest in the tech sector may therefore be weighing on the peso. 19.00/19.10 looks to be the trajectory for USD/MXN over the coming weeks. Banxico has done a number on the peso."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

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