USDMXN Analysis – 22-October-2024

In October, the Mexican peso fell to 20 against the U.S. dollar, marking the lowest level in six weeks due to international and local challenges. This decline has sparked a debate on the need for more flexible lending rates.

The peso’s weakness is partly due to fears that the U.S. might impose severe tariffs—up to 300%—on vehicles manufactured in Mexico. These concerns are intensified by the increasing likelihood of Donald Trump returning to power, which could lead to significant economic implications for Mexico.

The USD/MXN 4-hour chart below demonstrates the price, support, and resistance levels.

Impact of U.S. Policies on Mexican Automotive Industry

The automotive industry, crucial for Mexico’s economy, faces potential burdens, with former U.S. President Donald Trump threatening significant tariffs.

Such policies could severely disrupt the sector, affecting the broader economic landscape in Mexico. The prospect of these tariffs comes as Trump’s chances of winning upcoming elections appear to be strengthening, posing additional risks.

Economic Outlook and Policy Adjustments

According to a recent IMF report, Mexico’s economic growth is expected to decelerate to 1.5% this year despite efforts to boost the economy through fiscal stimulus.

However, the report also mentions the potential advantages of nearshoring activities, which could benefit Mexico in the long term.

Furthermore, discussions from the Bank of Mexico reveal a shift toward a more accommodating monetary policy, with predictions leaning towards a 50-basis-point reduction in interest rates by year-end.

Global Economic Influences on Emerging Markets

Emerging markets are currently less attractive to investors, influenced by the anticipated stricter monetary policies in the U.S. This shift towards conservatism is exacerbated by only modest economic stimulus measures from China, leading to a cautious approach towards emerging market assets.

The shift in sentiment and policy in major economies like the U.S. and China is crucial in shaping the investment landscape for countries like Mexico.

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