USD/MXN: High degree of political uncertainty – Lloyds Bank

Analysts at Lloyds Bank notes that the Mexican peso has nearly reversed its post-US presidential election losses against the US dollar as the USD/MXN continued to trend downwards over the past month to touch 19.05 - its lowest level since November last year.

Key Quotes

“Much of the recent strength in the peso has come off the back of more conciliatory comments from the US government in terms of the future trade relationship with Mexico. All the recent pullback in USD/MXN confirms is that foreign exchange markets may have been pricing the worst outcome for Mexican and US trade relations. Given President Donald Trump’s rhetoric during last year’s election, that comes as no surprise.”

“Still, in the near term there is a high degree of political uncertainty around the future of NAFTA and any potential replacement agreement. Hence the risks to our forecasts remain high and balanced in either direction, even if we believe the peso to be undervalued.”