📝We Are Negative On MXN, See Peso At 18.20 By End Of Year: BBVA Strategy

Since our Asset Allocation released in November 2023, the economic balance of risks has moved to the downside as the economy could underperform in the 1Q24. Also, we have recently updated our year-end inflation forecast to around 3.9% YoY, given pressures from volatile items and services in the first few months of 2024.

While these factors would give room to Banco de Mexico to ease its monetary policy rate significantly, the Board has remained cautious. Hence, we expect the CB to cut rates again in the following months and move on with the easing cycle in the rest of the year.

While the MXN should remain anchored in the near term, we are negative on the currency due to a stretched valuation, the deterioration of macro fundamentals, expectations for political noise, a higher risk premium, and our view of a lower carry ahead. We now see USDMXN at 17.40 in the next two months and at 18.20 by year-end

-BBVA Strategy