The Mexican Peso (MXN) is on the rise this Monday, showing strength against its key currency pairs, particularly the US Dollar (USD). This upward momentum comes as the “Trump trade”—a phenomenon that previously supported the Greenback—begins to fade amid growing uncertainty surrounding the upcoming US presidential election.
Election Uncertainty Weighs on USD
As the election draws near, market sentiment has shifted significantly. Traders are unwinding bets that previously favored a Trump victory, which has led to the USD experiencing increased pressure. According to Nate Silver’s FiveThirtyEight, the probability of Trump winning is currently estimated at 53%, while Vice President Kamala Harris has a 46% chance. There’s even a 1% likelihood of no outright winner. This tight race has led analysts to predict potential fluctuations in the USD/MXN exchange rate, which could range between 18.30 and 22.26 depending on the election’s outcome.
The financial site El Financiero outlines four key scenarios for the USD/MXN pair:
- Harris wins with a Democratic majority: The Peso could strengthen to between 18.30 and 19.00 against the USD.
- Trump wins with a Republican majority: The Peso may weaken to a range of 21.14 to 22.26.
- Harris wins without a Democratic majority: Expect fluctuations between 19.40 and 18.80.
- Trump wins without a Republican majority: The USD/MXN pair might trade between 21.14 and 19.70.
Macroeconomic Indicators Favor the Peso
The Peso’s rise is supported by relatively positive macroeconomic data from Mexico. Recent reports indicate a notable improvement in Mexican business confidence, which rose to 52.3 in October. Additionally, the S&P Global Mexican Manufacturing PMI increased from 47.3 to 48.4, signaling a potential recovery, although it remains in contraction territory.
The unemployment rate in Mexico remains low at 2.9%, unchanged from the previous year. Moreover, the country experienced a third-quarter GDP growth of 1.0%, a significant increase from just 0.2% in the previous quarter, with annualized growth standing at 1.5%.
Expectations are building that the Banco de Mexico (Banxico) may cut interest rates by 25 basis points (bps) to 10.25% in their upcoming meeting on November 14. However, experts caution that this could pressure the Peso as lower interest rates typically result in reduced foreign capital inflows. Emerging Markets Economist Kimberley Sperrfechter from Capital Economics notes that Mexico’s surprising GDP growth does not eliminate the possibility of a rate cut, which will ultimately depend on inflation trends.
Also read : Japan’s Manufacturing Output Contracts Again- October PMI Drops From 49.7 to 49.2
Technical Analysis Suggests a Bullish Trend
Despite the recent volatility, the USD/MXN pair shows signs of a bullish trend. After peaking at 20.29 on Friday, the pair opened lower in the 20.11s range. Technical analysis indicates that the pair appears to have completed a bullish measured move, a pattern that began at the October 14 swing low.
Although the gap down could suggest a potential shift, USD/MXN is still likely in an uptrend across short, medium, and long-term timeframes. Trading within a bullish rising channel, the old adage “the trend is your friend” suggests that the Peso may continue to gain ground.
Additionally, the Moving Average Convergence Divergence (MACD) indicates low momentum compared to recent standards, highlighting a potential lack of enthusiasm in the current bullish rally.
