Mexico’s peso rebounds on its deal to avoid US tariffs


Currency claws back its losses after migration pact averts the threat of levies

Mexico’s peso rebounded on Monday after the country reached a deal with the US to curb migration, avoiding the tariffs on Mexican imports that were set to start this week.

The currency made gains in Asian and European trading to rise as much as 2.5 percent against the dollar to reach 19.13 pesos, clawing back all of the losses sparked by the tariffs announcement at the end of May. It later gave up some of those advances to trade up 1.8 percent at 19.29 pesos by early afternoon in London.

Donald Trump “indefinitely suspended” tariffs on all Mexican goods late on Friday with Mexico promising to take what the US president called “strong measures” to stop migration at America’s southern border, ending eight days of uncertainty since the levies were announced.

Under the deal announced on Friday night, Mexico agreed to deploy its new National Guard police force to beef up its border with Guatemala. It also agreed that migrants applying for asylum in the US would to be “rapidly” returned to Mexico pending US court hearings.

“The past several weeks are another reminder that political winds tend to mean-revert from extreme levels,” said Zach Pandl, an analyst at Goldman Sachs.

“In Mexico, late Friday’s news that US import tariffs (for now) no longer cloud the near-term outlook for the peso is likely to push [the US dollar] down closer to levels [against the peso] that prevailed in late May.”

There was some hope that the resolution of the US-Mexico stand-off could trigger a thaw in the US’s trade dispute with China.

“Possible optimism may spill over into [China’s currency]on market hopes for dealmaking momentum to impact the US-Chinese trade dispute. We believe that any such rally will be shortlived, at least the component based on expectations for a softening in negotiating positions,” said Richard Kelly, an analyst at TD Securities.

“The reality is the driving forces behind the US-China dispute are altogether much different than with Mexico, with deeper long-term issues that are structural in nature, and weak Chinese trade data to start the week should remind investors of the ongoing impact of tariffs.”

The renminbi was broadly unchanged against the dollar in early European trading.

Source: financial times

The Mazatlan Post