Ahead of important trade talks in Europe and Washington, the Mexican peso traded on Wednesday at its strongest level in nearly three months, at 18.7 to the dollar. The peso also rallied to its best level this year versus the euro, at 21.9.
The Mexican peso ended Wednesday’s European session higher against all of the FX majors, ahead of a closely-watched meeting between US President Donald Trump and European Commission President Jean-Claude Juncker, and one day ahead of NAFTA negotiations in Washington between teams from the US, Mexico and Canada.
The Mexican peso has had a strange few months. With the dollar buoyant, emerging markets in trouble, an election looming and the oil bull market stalling, the peso shed nearly 15 percent of its value against the dollar between mid-April and mid-June. It has since strengthened by 12 percent as oil markets have held firm, as President Trump has signalled that a trade deal with Mexico – whether as part of NAFTA or as something new – is close, and as political uncertainty has eased with the election of new Mexican president Andrés Manuel López Obrador.
Peso strength in recent days certainly suggests that market participants are expecting positive developments on trade this week, and while the “long-term macro-economic implications of a new trade deal are likely to be limited, the developments and headline news flow will remain a key determinant of short-term [peso] price action and sentiment,” thinks Scotiabank’s chief FX strategist Shaun Osborne.
Among the most accurate peso forecasters in recent months is Standard Chartered’s Ilya Gofshteyn, and after successfully predicting the past month’s rally, the New York-based analyst remains bullish. The peso will strengthen a further 4 percent to 18 per dollar by year-end, Gofshteyn believes.
When asked last week by Bloomberg for his opinion on emerging markets, Gofshteyn said that “Mexico looks like one of the better stories.” He went on to explain that “[political] uncertainty is out of the way, the country has solid fundamentals, and the currency has an elevated carry.”