Mexican Peso to sell off a little on earlier-than-expected rate cut from Banxico – ING

In EM, the currencies of Mexico and Turkey are outperforming. Economists at ING are still very positive on the Mexican Peso (MXN).

Focus on Banxico’s rate meeting

Some banks are looking for a slightly earlier-than-expected rate cut from Banxico at Thursday’s meeting. That is a little earlier than currently priced by the markets and presumably would see the Mexican Peso sell off a little. However, Mexico currently has very high real rates – 6% using current inflation – and a modest reduction looks unlikely to do too much damage. 

At the same time, MXN price action shows it is far too early to miss out on 11% implied yields in the Peso on the threat that Donald Trump may or may not be elected president in November.

We are still very positive on the Peso.