Mexican Peso Outlook: Challenges Ahead in 2024

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The Mexican Peso (MXN) has experienced a tumultuous June following Mexico’s presidential election results, which have left investors uncertain about the country’s economic direction. The currency shed over 10% of its value and while it has partially rebounded, concerns persist.

Prior to the election, the peso was an attractive option for carry trades due to its high interest rates (currently at a record 11.25%) and political stability. This had contributed to its strong performance in recent years, making it the world’s best-performing major currency since 2016.

However, the election of left-wing President Claudia Sheinbaum has raised concerns about the business environment, government spending, and debt levels. Markets fear her policies may lead to a more challenging economic climate, which could negatively impact the peso.

Hedge funds and asset managers have adjusted their positions on the currency, cutting their net long positions by over 56,000 contracts. While Sheinbaum’s appointments of pro-business finance minister Rogelio Ramirez de la O and economy minister Marcelo Ebrard have provided some relief, some analysts remain skeptical about the peso’s recovery.

Edward Al-Hussainy, head of emerging market fixed income research at Columbia Threadneedle, believes that the peso will not recover due to Sheinbaum’s aggressive campaign promises. He notes that his firm has been reducing its Mexican assets in the run-up to and following the election.

Beyond the peso, concerns about Mexico’s economy are mounting. Citi economists predict slower economic growth (1.8% in 2024 and 1.2% in 2025) and rising inflation, which could further weaken the currency.

In summary, while the Mexican Peso has faced significant challenges following the election, its long-term prospects depend on how effectively the new government implements its policies and addresses economic concerns.

Author: Harry Clynch

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Source: Disruption Banking