We have been arguing that stability on the US rates front (or even better a rally) would allow Latam currencies with high carry and strong fundamentals to see renewed interest from investors. We have therefore kept our key OWs in the Model Portfolio in Mexico and Brazil, despite a correction lower, as we believed their total return prospects remain favorable. Effectively, this weeks some- what dovish Powell coupled with weaker PMIs has allowed US yields to catch a break, particularly in the back end. Latam FX welcomed the move, with MXN and BRL staging big rallies.
Prospects for the Mexican peso remain strong, with now better valuations and an increasingly hawkish Banxico; stay OW MXN.
- J.P. Morgan FX Strategy
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