Mexican Peso Under Pressure Following Israel-Iran Tensions

The Mexican Peso remains under pressure after experiencing a nearly 5% decline against the US Dollar in the overnight session for North American traders. Reports of Israel’s attack on Iran, in response to the April 13 drone attacks, triggered a significant flight to safe-haven assets, dampening the outlook for the Mexican currency. Despite hawkish remarks by Bank of Mexico (Banxico) Deputy Governor Jonathan Heath, which initially bolstered the Peso, it continues to trade in negative territory. The USD/MXN pair is currently trading at 17.16, marking a 0.50% increase.

According to reports from Reuters, Israel’s attack on Iran targeted military bases in the city of Isfahan. However, Iran is now downplaying the extent of the damage, suggesting a potential easing of tensions and a reduced likelihood of military retaliation.

In an interview with Reuters, Banxico’s Deputy Governor Jonathan Heath indicated that interest rates would remain elevated for an extended period, hinting at a pause in the central bank’s next meeting in May. Heath anticipates 2 to 4 rate cuts in the remaining six monetary policy decisions, contingent on economic data.

Expressing his views on the exchange rate, Heath suggested that the USD/MXN rate at 16.30 was likely too strong and proposed a “more sustainable rate” around 17.00. Regarding the upcoming US election, he anticipated a potentially negative reaction from the Peso, albeit not as severe as observed in 2016.

Meanwhile, Bank of Mexico (Banxico) Deputy Governor Galia Borja emphasized the ongoing efforts required to address inflation and move closer to Banxico’s 3.0% target.

In the United States, Chicago Federal Reserve President Austan Goolsbee delivered a speech, adopting a more neutral stance compared to his previous dovish position, adding to the economic discourse across the border.

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