Forex
Mexican Peso Tumbles as Carry Trade Exodus Continues Amid Narrowing Rate Differential
The Mexican Peso recovered modestly this week, but its decline is expected to continue due to investors exiting the 'carry trade' amid a narrowing interest rate differential between the US and Mexico.
The USD/MXN pair edged down to 18.21 from its peak at 18.35, with the Mexican Peso poised to end the week with a 3% loss.
The narrowing of the interest rate differential has undermined Mexico's carry advantage, with most private economists surveyed by the Bank of Mexico expecting interest rates to remain unchanged until the end of 2027.
Meanwhile, the Federal Reserve is seen tightening monetary policy, at least by 25 basis points, towards the end of the year, which would put the US-Mexico interest rate differential at 2.25%.