How far would the Peso go if Trump applies tariffs to Mexico?


Analysts explain what the impact on the exchange rate would be if Trump met his threat to impose tariffs of 5% and 25% on Mexican products.

The strong reaction this Friday had the exchange rate before the announcement by Donald Trump that it will impose tariffs on all Mexican imports can be the preamble for the dollar to suffer new volatility events and reach 21 or even 24 pesos in the second half of the year if rates are specified, according to analysts.

Trump said tariffs will start with 5 percent on June 10 and gradually increase to 25 percent if in his opinion Mexico does not perform the tasks he considers appropriate to stop the migration to his country.

“Tariffs will remain at the 25 percent level until Mexico substantially stops the illegal entry of foreigners (…) Therefore, we expect and appreciate the quick and effective actions that we expect Mexico to install immediately,” he said. president in a statement.

In a scenario where the threat of taxing Mexican imports with an initial tariff of 5 percent is materialized, the exchange rate would have to rise 20 pesos to the dollar, or more, to offset said tariff, however the depreciation of the The currency would be higher as the tariff increases, explained Gabriela Siller, director of Economic and Financial Analysis at Banco Base.

“The truth is that the exchange rate will be very sensitive to news. My impression is that if tariffs of 25 percent are confirmed, we are going to see an exchange rate above 23.50-24.00 pesos per dollar (interbank) at some point in the second half of the year, “said the economist.

The peso virtually wiped out its earnings for the year this Friday, after Trump’s announcement, and closed at 19.54 per dollar. In bank window the green ticket is sold in 20 pesos.

For its part, the analysis area of ​​the Swiss bank UBS stressed that due to the strong commercial relationship between the two nations, the Mexican peso is expected to weaken even more than reported to date if the Trump administration decides to implement these tariffs.

“We expect the Mexican peso to depreciate further. In the event that the full scale of tariffs is implemented, we would expect the (interbank) exchange rate to be negotiated at 21.50, compared to the 20.00 that we expect in the event that this demonstrates that it is only a threat, “said the bank. in a report.

However, they indicate that these rates are unlikely to be implemented because the main members of Congress have already expressed concern about the proposal, and it is likely that donors of the Republican Party will not be in favor either.

“The decision to impose tariffs that ignore the NAFTA and WTO rules is also likely to be challenged in the courts,” UBS said.

The Chamber of Commerce of the United States indicated earlier this Friday that tariffs on products from Mexico are a wrong move, because these will be paid by American families and businesses.

In a statement, Neil Bradley, executive vice president and policy director of the US Chamber of Commerce, added that with this measure, nothing is being done to solve the real problems on the border.

While, according to data from Bloomberg calculated from the curve of forwardcontracts on the Mexican peso against the dollar to be delivered in the coming months, today operators estimate that the parity of the dollar against the peso concludes the third quarter of the year at levels close to 20.01 pesos per dollar in the interbank market.

An increase of 0.54 cents compared to the 19.47 pesos per dollar that had been calculated a week before.

At 20.01 units per interbank dollar, at the teller window it would operate above 20.30 pesos.

For the case of the fourth quarter of the year, according to the forward curve, they expect it to reach 20.32 pesos per dollar, an increase of 55 cents compared to the 19.77 pesos per dollar that was forecast for the week ending 24 May.

An interbank dollar at 20.32 pesos means that at the window it would sell above 20.60.

Source: el financiero

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