The Mexican Peso (MXN) has been facing several risk factors that could potentially reverse its long-term uptrend. Analysts believe that the currency may have peaked and is on the way down due to negative fundamentals such as the upcoming Mexican and US presidential elections, as well as a narrowing interest-rate differential that supports MXN.
Investors are unwinding their long bets on MXN as they brace for market-moving events on the horizon. The Mexican presidential election on Sunday is expected to result in the election of Claudia Shienbaum, who is likely to continue the social-welfare program of the current president and further increase the minimum wage. This could potentially boost consumer spending but make it challenging for the Bank of Mexico to control inflation.
Another threat to the Mexican Peso is the possibility of Donald Trump’s reelection in November, which could lead to the reintroduction of tariffs on Mexican goods. This could hamper Mexico’s near-shoring prospects and weaken the Peso substantially during the next president’s tenure.
The high-interest rates in Mexico have been a driving force behind the Peso’s long-term uptrend, attracting foreign investor inflows. However, Banxico has already cut interest rates and is expected to do so again in June, closing the interest-rate differential with counterparts. This, along with interest-rate expectations in the US, could weaken the Peso against the US Dollar in the coming months.
Technical analysis shows that USD/MXN is in a short-term uptrend, with the pair surging above the psychological 17.00 level. The Relative Strength Index (RSI) indicator suggests a risk of a pullback, but a decisive break above the major trendline could indicate a reversal of the medium-term trend to an uptrend.
Overall, the Mexican Peso is facing a challenging period ahead with multiple risk factors influencing its performance. Investors are closely watching key economic indicators such as the jobless rate, which could provide more insights into the health of the Mexican economy and impact the Peso’s movement in the near future.
