📝 Expect Further Banxico Tightening to Support Peso: Scotiabank

The Mexican peso (MXN) remains the best-performing major currency against the USD so far in 2023, with an 8.3% gain (at writing). The MXN has been lifted by aggressive Banxico rate hikes that have striven to fight domestic inflation and maintain a significant yield advantage over the USD as Fed policy has tightened. High yields and relatively low volatility are making the MXN an attractive carry trade vehicle for investors. But slowing inflationary pressures suggest the central bank’s aggressive tightening cycle may be close to an end (Scotia expects a bit more tightening to 11.75% for the Overnight Rate, from the current 11.25%). This may mean a little more short-term strength in the peso before its slips back to the upper 18 zone late this year.

- Scotiabank