(MENAFN- Investor Ideas) Investorideas, a go-to platform for big investing ideas releases market commentary from Quasar Elizundia, Expert Research Strategist at Pepperstone.
"The Mexican peso is managing to hold strong in a key trading session, showing relative stability amid growing economic uncertainty. However, recent Gross Domestic Product (GDP) data from Mexico paints a slowing growth picture, raising serious concerns about the currency's medium- and long-term outlook.
While the peso has managed to remain relatively stable against the U.S. dollar, even showing gains, this resilience could be an illusion. The 0.6% GDP contraction in the fourth quarter of 2024, combined with an annual growth rate of just 0.6%, reveals a weakening of the Mexican economy, especially in the primary and industrial sectors.
The peso's stability is mainly a reflection of the weakness of the U.S. dollar across the board during the session. The GDP contraction in the last quarter and the slowing annual growth are undoubtedly warning signs that cannot be ignored.
External factors also play a crucial role in the peso's performance. U.S. economic data, from Mexico's largest trading partner, could put pressure on the currency. U.S. GDP growth in 2024 stood at 2.3%, a pace of expansion that has slowed in the last quarter, somewhat weakening the narrative of U.S. economic exceptionalism that dominated the first half of January. Naturally, a slower economic expansion in the U.S. could have additional indirect implications for the Mexican economy.
Additionally, we cannot rule out the impact of a more aggressive monetary easing policy next week from Banco de Mexico, which could adopt a more "dovish" stance in response to economic slowdown.
Another risk factor for the peso is the potential imposition of tariffs by the U.S. on Mexican products. The implementation of these tariffs could have a significant negative impact on the Mexican economy and trigger a greater depreciation of the peso.
The threat of tariffs is an uncertainty factor that weighs on the peso. While we hope it does not materialize, we cannot underestimate its potential impact on the Mexican economy and market confidence.
In this context, the Mexican peso is at a crossroads. While the short-term stability of the MXN is a sign of resilience, both internal and external risks could test the currency's strength in the coming weeks and months. The evolution of the U.S. economy, Banco de Mexico's monetary policy, and the threat of tariffs will be key factors to monitor closely.
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