Mexican Peso: Weakness and USMCA risk repricing – Commerzbank

Commerzbank's analysis indicates that the Mexican Peso (MXN) experienced a notable decline in September, falling over 4% against the US Dollar. While standard macroeconomic factors and Banxico's policy guidance contribute to this trend, positioning and renewed concerns surrounding the USMCA negotiations seem to be significant catalysts as well.

Despite a slight stabilization noted in recent days, September was an overall weak month for the Mexican peso. Since the beginning of the month, it has depreciated by more than 4% against the US dollar.

The prevailing strong US Dollar and increased risk aversion are likely key contributors to the prevailing weakness observed in many emerging market currencies. When accounting for oil price movements and US yields, only a small residual effect remains for most currencies. However, in the case of the peso, this explanation seems insufficient, as nearly a third of its weakness since last week can be attributed to these factors.

There also appears to be a possibility that the recent postponement of USMCA negotiations may have contributed to the MXN's decline.

While the current market sentiment towards emerging markets is expected to improve and support the peso, there is a forecast of renewed weakness in the US Dollar. The long-standing belief that the market should not overlook the risks associated with the MXN has, however, been confirmed. Throughout the day, the FXStreet Insights Team, a collective of journalists, reports on selected market observations from esteemed experts.