Mexican Peso Improves as USD/MXN Degrades and EMFX Became Strong
USD/MXN was high for the previous six months till it got near 20.90 last week. It was a major breakdown for the currency pair, as nobody expected it because of its amazing performance in the past. It was challenging because energy prices went down in the US but there is a significant help provided by the start of the quarterly earnings season as the corporate profits have helped the dollar to get strong easily.
There is a solid bounce in the US equities along with the S & P 500 and Nasdaq 100 for nearly 6% and 7% from their monthly lows, even after the concerns about the fed policy normalization. EMFX works fine when things are going well on Wall Street and traders are also confident about doing risky trades that will give them the potential income they want. If the United States stocks perform well and the treasury curve becomes as per order, the Mexican peso will stand in a dominant position to fight against the US dollar.
The Mexican central banks have strengthened the borrowing cost to 3 times in the year 2021 and planning to increase it more by twice when the year ends. This is all done to tackle the inflation pressures occurring in Mexico. The overnight rate of the currency may end at 5.25% that will widen the fed’s benchmark rate.
Oil is also getting strong in Mexico that will be considered a strength for this nation’s economy. The increased prices of the commodity will support the revenues for Pemex and lessen the financial pressures that will eventually reduce the credit downgrade that is causing a threat to the government.
Traders should focus on the bond market dynamics and general sentiment because these two variables will be important for the currency market in near future.