- The MXN recently showed relative strength compared to other EM currencies. In our view, the pause on most US tariffs and Mexico’s decision not to implement retaliatory measures supported this trend. Nonetheless, with uncertainty still high as we approach the 2 April deadline, we expect volatility to pick up again.
- Although carry loses relevance when volatility rises, the relative stance of monetary policy could weigh on MXN performance again – especially now that it appears the Fed will likely maintain a gradual approach to rates, while we expect Banxico to cut by 50bp this week and reach an end-2025 rate of 7.50%.
- From a technical standpoint, in the near term, we expect USDMXN to continue its reversal towards the convergence of the moving averages, which serves as immediate resistance near 20.40, approximately the midpoint of its YTD trading range.
- Overall, the combination of a lower interest-rate spread and the looming tariff deadline should add volatility to the MXN once again, and we see scope for a breach of the USDMXN20.40 technical level towards the recent 20.80 high in the next two weeks.