MXN: Weak real economy, further interest rate cuts, yet no weaker peso – Commerzbank

At the beginning of the year, very few analysts would have predicted that the Brazilian real and the Mexican peso would perform so well against the US dollar, with gains of 17% and 13% respectively, Commerzbank's FX analyst Tatha Ghose notes.

Peso appears to be well supported

"The Mexican peso's performance was particularly unexpected, given the many areas of conflict between the Mexican and US governments. In addition, we have repeatedly emphasised that the Mexican central bank is likely to cut interest rates more than the market is anticipating. After all, underlying growth remains weak."

"The only problem is that the market now sees things in a similar light. Another interest rate cut of 25 basis points to 7.5% is expected at today's meeting, with a further two cuts of the same magnitude expected over the next six months. This is essentially what we expected at the end of June. However, the peso has hardly reacted to this."

"Therefore, it seems questionable whether a dovish surprise in the wording this evening could make a difference. For the time being, the peso appears to be well supported."