The Mexican peso remains indomitable in the exchange markets and continues to gain ground against the US dollar, driven by the progressive reactivation of the world economy and the lower perception of risk in the financial markets. In May, MXN prevailed over the greenback with an overwhelming 9% appreciation, making it one of the most winning currencies worldwide. At the start of June, the Aztec currency has maintained momentum, strengthening in the first two trading sessions to operate decisively below the psychological level of 22 / USD for the first time since mid-March.
The shift towards high-yield assets in recent weeks has supported the higher beta currencies to the detriment of the US dollar, as investors have incorporated the reopening of the global economy in their expectations after the “great freeze” caused by the “coronavirus” pandemic. In this context, the USD / MXN has gone from trading from 24.50 in early May to the edge of 21.65 on the current day (June 2, 2020). An important factor that seems to be reinforcing the appreciation of the Mexican peso is the change in the Bank of Mexico’s bias towards a less conciliatory position in the face of the possibility of further growth in prices during the projection horizon. In this sense, it is necessary to highlight that banks aggressively increased their forecast of the INPC (National Consumer Price Index) for the third and fourth quarters of 2020 and for the first half of 2021.
The upside risks to inflation suggest that the relaxation cycle would be coming to an end, a positive development for the MXN, even more so if one takes into account the fact that the Federal Reserve is heading to cut the cost of money by below zero as expected by the market. For the Mexican peso the possibility of types negativ or s in the United States translates into a differential higher interest rates , a scenario that could strengthen inflows of capital into the country (currently, the benchmark rate Banxico ranks at 5.5%).
As volatility continues to decrease as it has been happening in recent weeks, the risk-adjusted return on the MXN carry – trade will become more attractive, a situation that could lead to the USD / MXN exchange rate towards 20.00 in the short term.