How will the peso react to an increase of 100 basis points?
One of the scenarios to be considered is the surprising increase of 100 base points on the interest rate. Analysts mentioned that this would give strength to the dollar given the uncertainty of how far the Fed can go in its expectations already at the end of the year.
The reaction of the exchange rate in this scenario could be much stronger to the downside, the reaction of the peso would be a relatively strong depreciation to levels of 20.5 and close to 21 units per dollar, “since the difference between the rates The interest rate of both countries would be reduced, propitiating a slight aversion towards risky economies”, indicated Eduardo Ramos, financial markets analyst at ATFX.
James Salazar, deputy director of economic and stock market analysis at CI Banco, agrees and expects that, in case of surprise at 100 basis points, the reaction of the currency could be much stronger downwards and have a depreciation of 25 cents during Wednesday. , due to a new boost to the rise of the US currency, since the demand for the dollar will be favored again.
What if it was just a 50 basis point hike?
With an almost null probability, the 50 base point increase scenario would show a less aggressive Federal Reserve than expected and the Mexican currency could take a slight advantage over the dollar, due to the widening of the differential with interest rates. from Banxico.
Analysts expect that in the event of this scenario, the peso could reach levels of 19.80 units in the short term.
“If the increase were 50 basis points, an option that is really almost zero, we would have the exchange rate reach levels of 19.80 pesos, given that this scenario is not discounted and it would be a much more abrupt reaction than the other possibilities”, said the deputy director of Monex analysis.
In the next two days, several global central banks are also expected to raise their interest rates or indicate that they will maintain a restrictive monetary stance due to the upside risks for inflation, which also generates caution.
Gabriela Siller, director of economic analysis at Banco Base, said that two exceptions could be seen, in which they will probably be the Bank of Turkey, which has acted against economic theory by cutting interest rates despite high inflation, and the Bank of Japan. , which on past occasions has indicated that it will maintain a flexible stance due to low domestic inflation.
