The Mexican Peso (MXN) extended its recovery on Friday, fueled by optimism surrounding President-elect Claudia Sheinbaum’s cabinet choices and the allure of Mexico’s high interest rates for foreign investors. However, the Peso’s gains were tempered by a subdued global market mood, with US and Asian stock markets facing headwinds.
Sheinbaum’s Cabinet Inspires Confidence
The announcement of Sheinbaum’s cabinet picks, including experienced figures like Marcelo Luis Ebrard Casaubón as Economy Minister, has reassured investors and instilled confidence in the incoming administration’s economic agenda. While market concerns haven’t entirely disappeared, this positive development is seen as a step towards stability.
High Interest Rates Attract Carry Traders
Mexico’s relatively high interest rates (11.00%) continue to be a major draw for carry traders, who borrow in low-yielding currencies like the Japanese Yen (JPY) and invest in higher-yielding currencies like the MXN. This ongoing demand is expected to provide significant support for the Peso in the coming months.
Banxico Expected to Hold Rates Steady
Analysts at Standard Chartered predict that the Bank of Mexico (Banxico) will likely keep interest rates unchanged at its June 27 meeting due to the recent currency depreciation and elevated political noise. This decision would further bolster the Peso’s appeal to yield-seeking investors.
Technical Analysis: USD/MXN Corrects Lower, Bullish Bias Remains
The USD/MXN pair is currently correcting lower from its June 12th peak of 18.99. While the short and medium-term trends remain bullish, with a potential target at the March 2023 high of 19.22, a break below 18.20 could signal a temporary shift towards a more bearish short-term outlook.
Key Takeaways:
- The Mexican Peso is rebounding on positive sentiment surrounding Sheinbaum’s cabinet picks and the attractiveness of Mexico’s high interest rates.
- The Peso’s recovery is tempered by global market concerns and ongoing political uncertainty.
- Technical analysis suggests a potential for further correction in the USD/MXN pair, but the overall bullish bias remains intact.
