Foreign exchange experts have conducted a Reuters poll on the future of Mexico’s peso, indicating that the currency is expected to face some challenges in the medium-term. Despite a relatively firm economy, the peso has experienced a 1% decline year-to-date. This drop is considered minor when considering the various negative factors affecting the currency, such as the delayed start of monetary policy easing in the United States and increased global volatility due to tensions in the Middle East. Experts predict a further 2.6% depreciation over the next 12 months, bringing the exchange rate to 17.59 per U.S. dollar.
Among the respondents in the poll, there is a range of forecasts for the Mexican currency, with expectations varying from 16.60 to 18.70 per dollar. Despite recent underperformance in the peso due to carry trade unwind, experts believe that the fundamentals of the Mexican economy remain strong. It is expected to benefit significantly from U.S. exceptionalism, with growth tailwinds from friend-shoring and close ties to the United States in terms of the labor market and monetary policy. Despite concerns about potential risks associated with the upcoming U.S. elections, experts remain optimistic about the near-term outlook for the peso.
While the central bank of Mexico has already lowered its benchmark interest rate, policymakers are likely to maintain the rate at 11% for a longer period than what the markets anticipate. Although inflation remains a challenge, the Mexican economy is projected to experience steady growth after the presidential elections in June. However, there are concerns about the potential impact of the election results on fiscal policy and economic stability, particularly with the increasing lead of Claudia Sheinbaum, the ruling party candidate for the presidency. There is uncertainty surrounding the consequences of both the Mexican elections in June and the U.S. elections in November, which could significantly affect the peso’s performance.
In comparison to other Latin American currencies, the Mexican peso has experienced modest losses as speculators cut carry trade positions. On the other hand, the Brazilian real is expected to gain strength against the dollar over the next 12 months, with a forecasted appreciation of 3.8%. Despite facing a fiscal deterioration deeper than Mexico, the real has already seen a 6.5% decline this year. This comparison highlights the unique challenges and opportunities faced by different currencies in the region.
Overall, the future of the Mexican peso is influenced by a combination of economic fundamentals, political developments, and external factors such as global volatility and monetary policies in the United States. While the currency is expected to experience a slight depreciation in the medium-term, the long-term outlook remains dependent on various uncertainties, particularly related to upcoming elections and their potential implications for economic policy. Investors and policymakers will need to closely monitor these factors to navigate the evolving landscape of the currency markets.