JPMorgan analysts warned that a Mexican central bank rate cut could send the peso down around 5%, to about 19.50 per dollar. Markets price roughly a 50% chance of a 25-basis-point cut, while most economists expect rates to remain at 6.5%.
JPMorgan analysts warned that a rate cut by the Bank of Mexico could trigger a “disorderly” peso decline and further volatility as markets question the central bank’s credibility. They estimated the peso could fall around 5%, to about 19.50 per dollar, with losses potentially deepening if traders become more bearish.
The central bank is due to meet Thursday. Markets are pricing roughly a 50% chance of a 25-basis-point cut, but most economists, including JPMorgan’s, expect policymakers to leave the benchmark rate unchanged at 6.5%. A hold could prompt a relief rally and help the peso recover some recent losses.
The peso has fallen nearly 10% over the past two months and around 4% this year, as investors increasingly bet that Mexico will continue narrowing its rate advantage over the United States. JPMorgan remains positive on Mexican government bonds and expects front-end yields to fall if rates are cut, though gains could be offset if investors see the move as a mistake that further undermines the peso.
