Mexico peso to navigate between firm economy and political doubts: Reuters poll By Reuters

Written by Gabriel Borin

BUENOS AIRES (Reuters) – A Reuters poll of foreign exchange experts showed that the Mexican peso is set to navigate between a relatively strong economy on the one hand and some political uncertainties on the other, with a slight decline in the value of the currency expected in the medium term.

The currency has lost 1% year to date, a slight decline given the list of negative factors it faces, such as the delayed start of monetary policy easing in the United States and high global volatility due to rising tensions in the Middle East.

Within 12 months, the peso is expected to fall 2.6% to 17.59 against the US dollar from 17.13 on Tuesday, which would still be at a stronger rate than it has been for most of the past eight years, according to the survey's average estimate.

Among 16 respondents to the survey conducted from April 29 to May 1, the weakest one-year forecast for the Mexican currency was 18.70 per dollar and the strongest was 16.60.

“The Mexican peso has underperformed amid the unwinding, but the fundamentals have not changed and Mexico should be the biggest emerging market beneficiary from US exceptionalism,” said Eric Martinez, Latam FX expert and interest rates strategist at Barclays.

“Growth tailwinds from support from friends and close ties with the US on the labor market and monetary policy should continue to support the peso… We remain constructive in the near term as it is too early to trade in US election risks.”

As speculators reduce “carry trade” positions, or bet on emerging market currencies with high interest rates, the Mexican peso is incurring modest losses compared to its other counterparts in Latin America.

While the country's central bank cut its benchmark interest rate in March by 25 basis points to 11%, the board is likely to keep it at that level for longer than markets expect, a key policymaker told Reuters last month.

Although inflation remains a challenge, the region's second-largest economy after Brazil is poised to grow steadily after the June 2 presidential election, in line with a good performance in the United States, a separate Reuters poll showed.

Former Mexico City Mayor and ruling party candidate Claudia Sheinbaum increases her lead in the presidential race. Some economists doubt that she will act decisively against the fiscal deficit if elected, despite her promises of austerity.

“There is significant uncertainty about the consequences (if not the outcome) of the Mexican elections in June, as well as the US elections in November,” Capital Economics analysts wrote this week in a note on the peso outlook.

In Brazil, the real is expected to rise 3.8% in 12 months to 5.0 per dollar from 5.19 on Tuesday. The currency is down 6.5% so far in 2024, as investors focus on a deeper financial deterioration than Mexico's.

(For other stories from the Reuters May foreign exchange poll:)

(Reporting and polling by Gabriel Boren in Buenos Aires; additional polling by Anita Sunil, Susubhan Sarkar and Rahul Trivedi; Editing by Ross Finlay and Alison Williams)