We revise down peso, euro and yen

Genevieve Signoret

Currencies

Summary

For end-2014, we revise up our forecast for the dollar against the peso, yen, and euro. Joel Virgen of Banamex does not expect Banco de México to intervene to smooth out foreign exchange volatility.

Most of our peso-based clients made money on the volatility

The recent volatility pushed the dollar up sharply against the peso (at its peak on 27 October, to a closing rate of $1.00=MXN13.56). But our client portfolios heavily dominated by U.S. dollar-denominated assets. So, even while markets fell sharply, many of our peso-based clients ended up making money.

We expect the USD/MXN to end 2014 at 13.30

We have revised our exchange rate outlook—as usual, with high uncertainty. Although we still project a peso rebound already this year, whereas earlier we expected the peso to strengthen over the remainder of 2014 from today’s $1.00=MXN13.47 to a year-end rate of 13.10, we now project it to bounce to a mere 13.30.

We have also revised down our forecasts for the yen and euro for year end. In the following table, we present our entire quarterly forecast revision through September 2016:

Check out our full revised projections for exchange rates

Joel Virgen: Banxico intervention this time is unlikely

There has been some speculation as to whether Banxico’s Comisión de Cambios might intervene to defend the peso. Joel Virgen of Banamex has weighed in. After looking at the current bout of exchange rate volatility in light of previous interventions, he concludes that, because liquidity indicators in foreign exchange markets haven’t fallen to sub-normal levels, Banxico intervention this time is unlikely (El Financiero).

We see a recovery in risk appetites and the peso appreciating to US$1.00=MXN13.00—our uncertainty is high though

We expect US$1.00=MXN13.30 for end-2015 as well

We project €1.00=$1.27 at end 2014 ($1.23 in Dec 2015)

And we foresee a year-end USD/YEN rate of ¥111 (¥114 in Dec 2015)