Major peso analyst has theory about when the Mexican currency will recover

It is likely that the Mexican peso to return to trading at 17 per dollar in the coming months, after the surprising result of the elections caused it to fall almost 5% in two days, according to one of the currency’s main analysts.

According to Bartosz Sawicki, market analyst at the Polish brokerage Cinkciarz.pl, also known worldwide as Conotoxiathe massive sell-off that followed Sunday’s elections in Mexico could be exaggerated, as the factors that have made the peso one of the most attractive currencies to trade remain in place.

He weightthe world’s most profitable currency until the end of May, has led global losses this week after Claudia Sheinbaum and her party won a landslide victory in Sunday’s election, giving her a strong mandate that investors had not seen coming.

“I expect a recovery, but not a complete comeback“, said Sawickiwhose forecast for the Mexican peso was at the top of Bloomberg’s accuracy ranking in the first quarter.

“Morena’s landslide victory really changes the political background and paves the way for some constitutional reforms, which are obviously perceived as unfriendly to the markets.“, said Sawicki, who, like most of his counterparts, did not take into account Morena’s strong participation in Congress. She had previously expected the peso to trade around 16.5 per dollar in the second quarter of 2024.

He weight was trading around 17.5 per dollar on Wednesday, strengthening as much as 2% and paring some of this week’s losses. To reach the level of 17 planned by Sawickiwould have to be strengthened by 3% more.

He weight benefited from the Mexican central bank’s reluctance to cut interest rates, he said Sawickiadding that the position hawkish “will be maintained and this will act in favor of the Mexican peso”.

Mexican policymakers kept borrowing costs unchanged in May at 11%, and analysts expect them to cut them by 25 basis points in June. The prospect of a slowdown in the US economy and the weakening of the dollar due to the possibility of rate cuts may also help boost the peso.

Even so, the peso will not have a linear recovery, as the recent outbreak of political risks due to elections from Mexico to South Africa and India reduces the attractiveness of investing in emerging markets.

“I’m really surprised by the magnitude of the moves in emerging markets right now.“, said Sawicki. “Obviously, markets after such a shock and shakeup will be more reluctant to dive into forex trading in emerging markets.”

The US elections, which will take place shortly after Sheinbaum takes office in October, are next “big risk event” for the peso, he noted, adding that the market will prepare for a review of trade and immigration policies that could harm the currency if Donald Trump wins.

“All the investors we spoke to in the last couple of days could be looking for other carry trade opportunities in different regions“, said Sawicki“or they will probably try to wait until the US presidential election in the fourth quarter”.