Forex News

Commerzbank analysts Michael Pfister and Norman Liebke argue that the Mexican Peso (MXN) is likely to weaken against the US Dollar (USD) in coming weeks as Banxico maintains a dovish stance despite rising inflation risks. They highlight that policy rates are moving into expansionary territory and expects USD/MXN to drift higher as monetary policy comes back into focus.

Banxico cuts seen weighing on peso

"Since the beginning of this year, the Mexican peso has been one of the top performers among liquid currencies, appreciating nearly 4% against the US dollar. One might be tempted to think this is unremarkable, as it simply continues last year's performance. USD/MXN is currently trading at a level similar to that seen before the Mexican presidential election in June 2024, before the turmoil surrounding relations with the US and concerns about the two-thirds majority and constitutional amendments gained momentum."

"These market expectations should come as no surprise. We warned several times last year about Banxico’s dovish stance. In March, the razor-thin majority of surveyed economists was in favor of keeping rates unchanged - which, given the uncertainties, would not have been entirely unjustified - but Banxico nevertheless cut rates by 25 basis points."

"Another rate cut of the same magnitude is likely to follow this week. At a time when other central banks are expected to shift toward more restrictive monetary policies, this naturally leads to a weaker peso."

"The market currently assumes that these developments will prevent Banxico from cutting rates further and will instead force them to raise rates again. The upcoming rate cut is not priced in; rather, two rate hikes are expected within the next twelve months. We remain skeptical that this will actually happen."

"Policymakers are ensuring that the peso remains among the weaker performers by continuing to cut interest rates despite the uncertainty in the Middle East. We expect this trend to continue and therefore anticipate further MXN weakness in the coming weeks."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Brown Brothers Harriman’s (BBH) Elias Haddad notes that GBP/USD has risen above pre-war levels as United Kingdom (UK) local and Scottish elections test Prime Minister Keir Starmer’s leadership. Haddad warns that a strong Green Party showing could push policy leftward and worsen fiscal concerns, with UK nominal Gross Domestic Product (GDP) growth running below 10-year gilt yields, posing a drag on the Pound (GBP).

Election risks and weak fiscal backdrop

"GBP/USD has rallied above pre-war levels. Today’s local and Scottish elections will test British Prime Minister Keir Starmer’s leadership."

"Starmer’s Labour Party is poised to get trounced when results start coming in early Friday morning."

"A strong showing from the Green party risks pulling the Labour government further to the left, raising concerns about UK fiscal credibility."

"Alarmingly, UK nominal GDP growth is tracking below 10-year gilt yields, making stopping debt growth very difficult which is drag on GBP."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Societe Generale analysts note that the National Bank of Poland (NBP) kept its policy rate at 3.75% and markets expect no further changes through 2026. Governor Glapinski’s press conference is expected to be uneventful unless he sounds very hawkish. EUR/PLN is drifting towards 4.22 after reversing its conflict-driven spike, while Polish bonds still trade well above pre-conflict yields.

Steady policy and bond lag

"In CEE [Central and Eastern European] , the NBP left its policy rate unchanged at 3.75% and markets are pricing no change from the NBP for the rest of 2026."

"NBP governor Glapinski’s press conference should be a non-event unless he comes across as extremely hawkish today."

"EUR/PLN is quietly drifting towards 4.22, fully giving up the ME [Middle East] conflict driven spike but the Polish bonds have a long way ahead for recovery with the 10y POLGB still about 65bp about the pre-conflict level of 4.92%."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

BNY’s Geoff Yu notes that expectations of progress toward peace in Iran are driving a bond rally and shaping flows in the United States (US) Treasury market. As Oil prices fall and real rates reprice, he argues exporter surpluses and reserve management trends could again favor the US Dollar (USD). The report stresses that recent US real-rate selling reflects liquidity needs rather than fiscal or inflation fears.

Treasury flows and conflict repricing

"A true end to the Iran conflict may still be some way off, but the market is increasingly confident that this is the broader direction. Yesterday’s news of a potential memo to this effect has driven a strong move in bond markets. As oil prices decline and fears over inflation ease, we would naturally expect a decent move in bonds as real rates reprice globally, almost without exception."

"The U.S. Treasury market has also reacted strongly to hopes of an end to the conflict, just as the foreign vs. domestic gap is starting to close. On the real rates side, we stress that the sales seen through the last six weeks are still a function of liquidity needs rather than worries over U.S fiscal conditions or inflation-driven steepening, even though those factors will need to feature more heavily over the medium term."

"By default, if oil prices ease, exporter surpluses could rise from here and normal service will resume in reserve management trends, which will continue to heavily favor the dollar’s performance."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)