FX.co ★ Mexican Peso Pulls Back From Mid-2024

The Mexican peso has slipped beyond 17.4 per US dollar, retracting some of its robust monthly gains that had previously elevated it to mid-2024 highs. This decline is a response to a stronger US dollar and changing interest rate expectations, which have undermined support for carry trades. This shift was largely prompted by the rebound of the US dollar following the nomination of Kevin Warsh as the forthcoming Fed chair. His nomination mitigated concerns over policy credibility and led to a rise in US yields, thereby increasing the opportunity cost of holding peso positions. Domestically, the peso's decline was further supported by evidence that Mexico's economic growth remains stagnant, despite experiencing a rebound in the fourth quarter. This has solidified expectations that Banco de México will cautiously continue its easing strategy after reducing the policy rate to 7% in December. This approach is gradually narrowing the real yield differential that had previously supported the "superpeso." Additionally, heavy profit-taking following January's sharp appreciation has intensified this downward adjustment.