UBS predicts that the dollar will be trading at around 20 pesos

The exchange rate may trade near or above 20 pesos per dollar in the coming months, but the Bank of Mexico is not expected to intervene to support the peso, unless the volatility of the exchange rate creates risks for the financial stability, warned the Swiss financial firm UBS.

In a brief analysis, the investment bank highlighted that the potential approval of constitutional reforms, the loss of independence of the Legislative and Judicial powers and the expenses that these reforms could entail for the economy can trigger the exchange rate.

The analysis details that markets are likely to remain sensitive to news during the US election period.

Unless exchange rate volatility creates risks to financial stability, we do not believe that the Bank of Mexico will intervene to support the peso. We believe that the risks of intervention will be activated only if the exchange rate rises sharply above 20 pesos per dollarhe predicts.

Analysts also perceive short-term fiscal risks. With public sector borrowing requirements, the deficit is projected to rise to 5.9 percent of GDP (gross domestic product) this year. The fiscal goal for 2025 (reducing the deficit to 3 percent of GDP) seems too optimistic and increases the risks of a fiscal cliff in the first year of the next governmenthe added.

At the same time, the US elections are another key risk event for Mexican assets,” added the Swiss firm.

There are just a few days left until the first presidential debate in the United States, on June 27. According to UBS, the southern border is a priority issue for that country, as is Mexico’s trade deficit, as it is double what it was in 2017.

The bank also considered that interest rates remain attractive and there is less room for the Bank of Mexico to make returns more flexible.

This is because the monetary authority could face an environment of greater financial uncertainty in the coming months and years, and this has greatly diminished the BdeM’s potential to reduce rates this year (UBS now expects two rate cuts). 0.25 percentage points).

By Editor

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