Mexican Peso: Carry appeal faces crowding risk – MUFG
MUFG analysts Derek Halpenny and Abdul-Ahad Lockhart state that the Mexican Peso continues to benefit from low FX volatility and strong carry demand, with USD/MXN breaking below 17.00 for the first time since June 2024.
Analysts at MUFG, Derek Halpenny and Abdul-Ahad Lockhart, highlight that the Mexican Peso remains appealing due to low foreign exchange volatility and strong carry demand. The USD/MXN pair recently broke below 17.00, its lowest level since June 2024. Robust growth in Mexico, persistent high inflation, and Banxico maintaining a steady policy stance are key factors supporting carry, although the analysts caution that this positioning is crowded and susceptible to a sudden reversal.
The low volatility in USD/MXN has persisted, with the currency pair's one-month implied volatility nearing the lowest level since late 2019. Investors should be aware of the potential for a sharp reversal, particularly if the Federal Reserve raises interest rates and US yields rise further.
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