MXN has been Credit Suisse’s favorite EM currency throughout H123. The bank remains constructive on the peso.

Banxico is expected to cut ahead of the Fed

Surprises from soft CPI data led markets to expect Banxico to cut rates ahead of the Fed, starting in the fourth quarter. This would be contrary to previous history of Banxico waiting for the Fed to cut rates before starting its own easing cycle.

With the bank’s focus on exchange rate stability under Rodriguez, we are skeptical that these expectations will materialize and will therefore remain constructive on the peso.

A slowdown in US activity would pose a greater threat to MXN strength.

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