November 16, 2020 — bridge21 weekly update
Exchange rates head lower as Banxico holds benchmark rate at 4.25%

Banxico holds benchmark interest rate at 4.25%

Banxico (Mexico’s Central Bank) unexpectedly kept its benchmark interest rate at 4.25% on Thursday, citing inflationary pressures. The market expected a 0.25% cut to 4%.

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This is great news for carry traders (who borrow US Dollars to buy MX Pesos and earn a higher rate of interest on their MX Pesos) and will apply downward pressure on the USD:MXN exchange rate, as it remains as profitable to hold MXN and earn interest.

Not surprisingly, the exchange rate market reacted three days before the announcement, with rates crashing all the way to 20.0354 on Monday before recovering.

There is strong support at 19–20 levels, so barring some sort of major disruption, we see rates heading sideways and up from here.

Longer-term USD:MXN rate forecast

Our long-term forecast remains unchanged. As the US election resolves itself, we expect higher exchange rates in the coming months.

Best regards,

Will -bridge21

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['Will Madden']
['Remittances', 'Fintech', 'Mexico', 'Blockchain', 'Payments']