USD/MXN: Peso to soften in light of the beginning of Fed tapering – MUFG

In August the Mexican peso weakened from 19.848 to 20.071 against the US dollar. Economists at MUFG Bank expect MXN to depreciate from the 4Q onwards amid tapering cycle in the United States.

Mounting COVID-19 cases and deaths with Delta variant, and sluggish vaccination rollout in Mexico

“Assuming that FED tapering starts later this year and it will carry on at a gradual pace during next year, we see room for moderate MXN appreciation in the near-term as market fears over more aggressive tapering ease.”

“However, the pace of MXN appreciation tends to be limited by the more concerning COVID-19 scenario in Mexico. The pace of vaccination continues to be sluggish, the number of cases is at record levels and deaths have been increasing as well.” 

“We now expect the MXN to be at around 20.150 at the end of September.”

“From 4Q onwards, there is room for gradual MXN depreciation driven first by the beginning of Fed tapering, followed by the expectation of the FED funds rate hikes that might start later next year/early in 2023.”