The Mexican peso has been moving sideways as the US dollar appears to be basing.

Outlook for the Mexican Peso

Most currency analysts are predicting that the peso will end the year between 18 and 20 pesos to the dollar. So, let’s take a look at some of the fundamentals regarding the peso.

The Mexican economy slowed down amid a prudent fiscal policy and monetary tightening. NAFTA and the presidential elections in July could weigh on the peso. The Mexican economy has slowed due to monetary and fiscal tightening. Mexico’s GDP growth has been below 2.0% for three straight quarters.

Inflation has started to ease finally. In February Mexico’s CPI slowed to about 5%, which is the lowest reading in one year, in spite of high oil prices. Previously implemented monetary tightening and appreciation of the Mexican peso has lowered inflation pressures, while longer-term inflation expectations stay around 3.5%.

The Mexico central bank, Banxico, has continued to hike rates since December 2015. The policy rate reached 7.5% in February 2018, with a total increase of 450 basis points since December 2015.

The political situation remains unclear. Andres Manuel Lopez Obrador (AMLO), who leads the left-wing party, is still leading with around 30% support. The next government is likely to push fiscal stimulus as fiscal austerity has been unpopular under current Mexican President Peña Nieto. If AMLO is expected to win, markets would react negatively.

NAFTA renegotiations with the US have been delayed without significant progress on contentious issues and could weigh on the peso. The seventh negotiating round will be held in April in Washington, DC.

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