The Brazilian Real (BRL) and the Mexican Peso (MXN) have been gaining momentum in the forex market, with analysts expecting them to remain strong against the US Dollar (USD) due to the signal of a pause in US interest rates. The BRL and MXN have been performing well in recent weeks, and economists at Commerzbank predict that they will continue to do so.
Both currencies have been benefitting from the high real interest rates in Brazil and Mexico, as well as a slightly lower policy rate that is justified by the Fed’s rate pause. The central banks in both countries have been hawkish in their approach to interest rates, making the Fed’s decision a necessary condition for them to consider moving away from their ultra-hawkish stance.
According to Commerzbank economists, “Given the high real interest rates in Brazil and Mexico, slightly lower policy rates seem justified.” This sentiment has been driving demand for both currencies, as investors seek higher yields amid a pause in US interest rates.
The BRL has been on a steady upward trajectory, with analysts predicting that it will remain strong against the USD. The currency has been bolstered by Brazil’s positive economic data, including better-than-expected GDP growth and an increase in industrial production. The MXN has also been performing well, driven by Mexico’s strong exports and favorable economic conditions.
Despite the positive outlook for both currencies, analysts warn that there are risks that could affect their performance. One of the biggest risks is the potential for a resurgence of COVID-19 cases in Brazil and Mexico, which could lead to renewed lockdowns and economic disruption. Additionally, political uncertainty and trade tensions could also impact the currencies’ performance.
In summary, the BRL and MXN have been benefiting from high real interest rates and a slightly lower policy rate that is justified by the Fed’s rate pause. The currencies are expected to remain strong against the USD, but there are risks that could impact their performance in the coming months.
