Top Mexico Peso Forecaster Is Rare Voice Predicting No Rate Hike

  • Barclays’s Jaime says selling dollars would be better support
  • Peso is worst major currency in past month as Trump gains

As swaps traders and economists grow convinced Mexico’s central bank will raise interest rates to stem a rout in the peso, the currency’s top forecaster has a different prediction.

Barclays Plc strategist Andres Jaime says policy makers are instead likely to support the peso by selling dollars in the spot market, making use of a plan announced in February that allows the bank to intervene whenever currency moves become disorderly.

Goldman Sachs Group Inc., BNP Paribas SA and the Mexican bank known as Banorte predict policy makers meeting Sept. 29 will raise borrowing costs half a percentage point to 4.75 percent, while swaps traders are also pricing in a hike in coming months. Jaime says higher interest rates are unlikely to curb the selloff that sent the peso to the biggest slide among the world’s major currencies in the past month because the losses are being driven by speculation on the U.S. election and emerging-market sentiment, not Mexico’s fundamentals.

“You could have a sore throat, but you’re not always going to use the same medicine to fix that,” said Jaime, who predicts the peso will fall to 20 per dollar by the middle of 2017. “It depends on what the underlying cause is. This time around we think the underlying cause calls for foreign-exchange intervention rather than a hike.”

The peso weakened 0.6 percent Friday to 19.7361 per dollar as of 12:37 p.m. in New York, putting it less than 1 percent away from a record low reached earlier this week. The peso is down 5.6 percent over the past month.

The currency has suffered from polls showing Donald Trump gaining on Hillary Clinton before U.S. presidential elections in November. The Republican candidate has promised to renegotiate the Nafta free-trade deal that’s been key to Mexico moving from a largely closed economy to a global export and manufacturing powerhouse over the past two decades.

Traders also use the peso to speculate on the outlook for emerging markets as a whole, using it as a hedge for risk because it’s easy to trade and shorting it is relatively cheap.

"People are using the peso as a proxy for the U.S. election even if they don’t have a position in Mexican assets," Jaime said. "If you have evidence that people are overusing your currency as a hedge -- or to speculate, to lower the incentive of people overusing it, they could sell dollars.”

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