As a financial expert, the Swiss firm UBS has warned that the exchange rate for Mexican pesos may trade near or above 20 pesos per dollar in the coming months. While the Bank of Mexico is not expected to intervene unless there are risks to financial stability, there are concerns about potential fluctuations caused by constitutional reforms, loss of independence of the Legislative and Judicial powers, and resulting expenses for the economy.
Markets will remain sensitive to news during the US election period, which is also identified as another key risk event for Mexican assets. The southern border and trade deficit with Mexico are priorities around this time. Analysts see short-term fiscal risks with public sector borrowing requirements and deficits projected to rise, making it challenging to achieve the fiscal goal for 2025. This could result in a fiscal cliff in the next government’s first year.
Interest rates remain attractive, but there is less flexibility for the Bank of Mexico to make returns due to financial uncertainty in the future. With limited potential to reduce rates this year, UBS anticipates only two rate cuts of 0.25 percentage points. The environment of greater financial uncertainty in the coming months and years diminishes the Bank of Mexico’s ability to adjust rates.
In conclusion, factors such as exchange rate fluctuations, fiscal risks, and US elections are significant contributors to Mexican assets’ stability and influence on the peso’s value. The Bank of Mexico’s intervention will be based on maintaining financial stability while achieving fiscal goals may be challenging due to short-term risks. Interest rates remain attractive but have limited potential for adjustments in uncertain times ahead.
