Mexican Peso gets a lift from cabinet appointments

• The Mexican Peso finds support after investors welcome incoming-President Sheinbaum’s cabinet picks.
• Marcelo Luis Ebrard Casaubón will take the Economy portfolio. 
• High interest rates and a low probability of an interest-rate cut in June keep the Peso supported, analysts say. 

The Mexican Peso (MXN) continues recovering on Friday on the back of optimism regarding incoming-President Claudia Sheinbaum’s top cabinet picks and the expectations that higher interest rates in Mexico will continue attracting foreign capital to its shores. 

As a currency that tends to rise during periods of risk-on, however, the Peso’s gains are capped by an overall subdued market mood. US stock indexes closed lower on Thursday as the rally in tech fizzled out after higher US Jobless Claims stoked labor market concerns. Asian bourses traded mixed into Friday, with the Shanghai Composite posting its sixth weekly decline on uneven Chinese economic data. 

At the time of writing, one US Dollar (USD) buys 18.33 Mexican Pesos, EUR/MXN is trading at 19.56 and GBP/MXN at 23.17.

Mexican Peso regains investors confidence after cabinet choices

The Mexican Peso strengthened on Thursday after Claudia Sheinbaum’s announcement of six of her cabinet ministers was well received by markets. The list includes several leading academics and public servants who served with her during her time as Mayor of Mexico City. 

Heading up the Economy Ministry will be Marcelo Luis Ebrard Casaubón, the former head of Foreign Affairs under President Andres Manuel López Obrador (AMLO). Ebrard Casaubón left the ministry in 2023 to run against Sheinbaum for the Morena party nomination. He has a long background in government administration and was President of the United Nations Global Network on Safer Cities, which focuses on fostering sustainable development. He thus shares Sheinbaum’s concerns about climate change. 

“Ebrard will have to take on the renewal of a free trade agreement with the United States and Canada and increase foreign investment, another well-received announcement,” said Gabriela Siller, Director of Economic Analysis at Banco Base, to Associated Press (AP) News. Siller added that despite the appointment, market concerns had “not disappeared” following the election. 

For the other roles, Sheinbaum chose Juan Ramón de la Fuente, former rector of her alma mater the National Autonomous University of Mexico (UNAM), as Secretary of Foreign Affairs. 

Alicia Bárcena will serve as Secretary of Environment and Natural Resources. 

Rosaura Ruiz Gutiérrez, a biologist who worked at UNAM and under Sheinbaum when she was Mayor of Mexico City, was chosen as head of a new ministry overseeing science, humanities, technology and innovation. 

Ernestina Godoy, the Chief Prosecutor for Mexico City, was chosen as Sheinbaum’s legal adviser and Julio Berdegué Sacristán, an agronomist with a long academic trajectory, was her choice for the Secretary of Agriculture and Rural Development, reported Associated Press News. 

High interest rates have Peso’s back – Rabobank

The Mexican Peso is likely to remain supported by the relatively high interest rates in Mexico (11.00%) which make it one of the most attractive currencies to buy in the carry trade, according to Christian Lawrence, Senior Strategist at Rabobank. 

The “carry trade” is a type of investment in which investors borrow in a currency with low interest rates, like the Japanese Yen (JPY), and buy a currency with a high interest rate like the Mexican Peso. 

“The main driver of MXN outperformance has been its position as the world’s most attractive carry currency and that remains true and will remain true in the coming months,” Lawrence told FXStreet. 

This also makes it expensive for most traders to hold shorts positions in the Mexican Peso for long periods of time, he adds, reducing the chances of a long-term bearish change in trend.

Banxico to leave rates unchanged in July – Standard Chartered 

The Mexican Peso is likely to continue benefiting from its relatively high interest-rate differentials as the Bank of Mexico (Banxico) will probably not make a further interest-rate cut at its June 27 meeting – as had previously been expected – analysts at Standard Chartered (SC) say in a note on Thursday.

“We now expect Banco de México (Banxico) to stay on hold instead of cutting by 25bps at its 27 June meeting, amid sharp currency depreciation driven by elevated political noise and fiscal uncertainty,” says the bank. 

Currency depreciation will lead to imported inflation, according to SC, which will add to existing stubborn inflation in Mexico. This, in turn, will prevent the Banxico from pressing the trigger on rate cuts, supporting the Peso in the process. 

Technical Analysis: USD/MXN continues correcting

USD/MXN continues leaking lower after rolling over from its 18.99 peak reached on June 12. 

Whilst it is possible the correction could have further to run, the short and medium-term trends are still bullish, suggesting price will eventually turn around and start rising again. The next target higher is situated at 19.22 (March 2023 high).

USD/MXN Daily Chart 

A break above June 14 high at 18.68 would provide additional confirmation of more upside towards the target at 19.22.

A break below 18.20 (June 10 low), however, would change the tone of the chart to one that is more bearish in the short-term. From there the next stop down could be 18.11. 

The direction of the long-term trend remains in doubt after the break above the October 2023 high. Previous to that, it was bearish.