Mexican Peso's Rally Looks Like Temporary Respite to Citigroup

  • Central bank may not react were peso to break 20 per dollar
  • Peso is best-performing major currency in past week on debate

The Mexican peso’s world-beating rally this week may not last as speculation about the U.S. election result pushes it lower, Citigroup Inc. analysts warned.

The currency is up 2.1 percent in the past five days, more than 31 major counterparts tracked by Bloomberg, after polls showed Hillary Clinton won the first U.S. presidential debate Monday. The bounce off a record low is a breather for a currency that has lost almost a third of its value in the past two years as the price of oil fell and the country’s debt level rose. The peso gained 0.7 percent on Friday to 19.3866 per U.S. dollar.

Lately strategists at banks including Barclays Plc, Citigroup and Goldman Sachs Group Inc. have linked the currency’s slump to the rise in the polls of Clinton’s rival Donald Trump, who has promised to renegotiate the free-trade agreement that powers most of Mexico’s exports. On Thursday, the central bank raised its key interest rate for the third time this year partly to make it more expensive for traders to use the peso to hedge risk. The hike, according to Citigroup analysts including Kenneth Lam, may not buoy the currency for long.

“The fact they go out of their way to say there is no FX target may mean that there would be no reaction if 20 were to break," they wrote in a note to clients. “We think peso depreciation continues into the election if the election race stays tight, as we think it will."

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