Monterrey.- The Mexican peso has been on a tear, with the best exchange rate rally in the world over the past year. According to Bloomberg, the currency has surged nearly 10 percent and recently hit its highest level since 2015, defying bearish calls from major financial institutions.
Funds and asset managers have increased their bullish bets on the peso, leading to its overvaluation, according to market analyst Bartosz Sawicki. Despite this, Sawicki believes the peso will trade sideways in the near future, as interest rate differentials between the United States and Mexico may no longer support its attractiveness.
The Bank of Mexico recently cut interest rates for the first time in over a year, to 11 percent. This move, along with signals from the Federal Reserve of impending rate cuts, could diminish the peso’s appeal as a carry trade currency.
However, Sawicki predicts that the peso will remain stable against the dollar, supported by record US remittances and strong economic growth. He forecasts the peso to trade around 16.50 per dollar in the second quarter of 2024, before slightly weakening to 17 per dollar by the end of the year.
Sawicki’s accurate peso forecast ranked first in Bloomberg’s first-quarter accuracy ranking, and he believes a soft landing in the United States will create a favorable risk environment for emerging markets.
As the US presidential election draws closer, Sawicki anticipates increased volatility and investors turning towards undervalued currencies like the Brazilian real and the Chilean peso. Overall, he remains optimistic about the peso’s future performance in the face of changing market conditions.
With information from Bloomberg.