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Commerzbank Say USD Strength Masking Beneficial Factors for MXN

MEXICO
  • The Mexican peso - like most of the rest of the currency universe - has been suffering from the general dollar strength for several days, according to Commerzbank. However, they note that dollar strength is masking the fact that for the time being there is still much that argues in favour of a persistently strong peso.
  • On the one hand, Banxico has recently raised its growth forecasts for this year and next year. This could in part reflect the recent soft-landing expectations for the US economy that also benefit the local economy. Nevertheless, it also underscores a better than previously expected outlook, which should have a positive effect on the peso in the medium term.
  • Furthermore, the hawkish minutes of the last monetary policy meeting underlined Banxico's determination to fight inflation. Supported by additional central bank comments, the market's rate cut expectations have therefore also shifted further into the future in recent weeks. By now, the market is questioning whether there will be an interest rate cut at all this year. This should continue to ensure an attractive real interest rate in the coming months.
  • The slow pace of disinflation should confirm the central bank’s wait-and-see stance for the time being. As soon as the current dollar strength subsides, the peso should benefit from these developments.
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