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Capital Economics Predicting Sharp MXN Depreciation In H2

MEXICO
  • Despite the most recent label of the “super peso”, Capital Economics believes the currency is vulnerable to an “abrupt fall” over the second half of the year as risk sentiment deteriorates and the US enters a recession.
  • According to a senior market economist, “the Mexican peso’s relentless rise against the US dollar and other major currencies is increasingly at odds with macroeconomic fundamentals”. The firm now expects the currency to weaken to 20 per US dollar by year-end, though it may continue to edge higher for as long as risk sentiment holds up in the short-term.
  • The peso is the most overvalued it’s been in more than two decades and latest current-account data suggest the currency’s strength may already be weighing on the economy. Additionally, speculators’ positioning is nearing “extreme levels” that have in the past coincided with a stable or falling peso, the firm wrote.
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