Societe Generale strategists expect Mexico’s central bank Banxico to keep interest rates at 6.50% on Thursday, which could pose a challenge to market valuations if monetary policy tightens by 80 basis points in 12 months. They note that Fed policy remains a key factor and that political risks related to the United States-Mexico-Canada Agreement (USMCA) talks remain, while USD/MXN maintains a bullish bias and 17.50 is identified as a key headwind.
Holding Banxico and Watching USMCA Risks
“In Latin America, we expect Banxico to leave interest rates unchanged at 6.50% on Thursday. We are focused on the announcement and may test market prices for an 80 basis point tightening within 12 months.”
“Fed policy remains a key factor, and the hawkish tilt in the U.S. last week may also affect the country’s trading partner.”
“The United States and Mexico have completed the second round of USMCA review talks covering agriculture, labor, environment and rules of origin, as well as autos, steel and aluminum.”
“Progress is steady, but political risks – mainly from the United States – hang over the agreement ahead of the July 1 deadline. The pact could be extended for 16 years or move to annual reviews within 10 years.”
“USD/MXN maintains a bullish bias with the 17.50 level being the key hurdle.”
(This article was created with the lend a hand of an artificial intelligence tool and has been reviewed by an editor.)
