The upcoming months could see the exchange rate reach or exceed 20 pesos per dollar, predicts UBS, a Swiss financial firm. However, they believe that the Bank of Mexico will only intervene to support the peso if exchange rate volatility poses risks to financial stability. Several factors could contribute to fluctuations in the exchange rate, including constitutional reforms, loss of independence of legislative and judicial powers, and potential economic expenses from these reforms.
The market is likely to remain sensitive to news during the US election period, with analysts flagging short-term fiscal risks. The deficit is projected to rise to 5.9 percent of GDP this year, raising concerns about a fiscal cliff in the early stages of the next government. The upcoming US elections are also viewed as another key risk event for Mexican assets, with the southern border and trade deficit being significant issues for the US. Interest rates are deemed attractive, but the Bank of Mexico may have limited flexibility to adjust returns due to greater financial uncertainty in the future.
In conclusion, UBS anticipates that the Bank of Mexico may face challenges in reducing rates this year, with only two rate cuts of 0.25 percentage points expected. The uncertainty surrounding the exchange rate, fiscal stability, and US elections could all impact Mexican assets in the coming months.
