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Writing May Be on Trump’s Wall for Mexico’s Volatile Peso

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Writing May Be on Trump’s Wall for Mexico’s Volatile Peso

Various analysts trying to predict the general outlook for the Mexican currency, which is the world’s most volatile major currency, regularly complain that the currency’s strength or weakness majorly depends on the unpredictable politics mercy. For the most reliable and accurate forecasting about the Mexican peso though is the answer to one of the major questions below.

Who will take part in the wall payment?

Addressing clients last week, the head of research at Paris-based bank Natixis SA Mr Juan Carlos Rodado said that he is expecting three possible scenarios to determine where the peso will be this year. All of these scenarios revolve around who will pay for the construction of Donald Trump’s proposed wall along the US-Mexico border.

The favourable scenario for the Mexican currency is that the United States pays for the construction of this much-anticipated wall, a scenario that will lead to the weakening of the dollar while doing only symbolic damage to Mexico. At long last, the peso will move up by 4.6% by end of year.

The bad scenario for the Mexican currency would be the idea that the U.S President floated to slap 20% on the Mexico’s export to the United States. This scenario will decrease the Mexican currency by 2.7%. According to Mr Rodado, the worst scenario for the peso would be that the wall’s funding subtracted from a broader US-Mexico border adjustment. This scenario will kerb corporate profits, spur U.S. inflation and boost the dollar. The ultimate result here is that the peso will hit very low records and trade at 22 per dollar.

“The decision by Trump on trade policy is likely to change the big picture,” Mr Rodado said in an interview.

According to Bloomberg data, Mr Rodado proved to be an accurate and reliable forecaster for the Mexican currency during the second half of 2016.

The peso has been at the mercy of the United States politics since last year when the presidential election campaign kicked off. It picked up when the Democratic presidential candidate Hillary Clinton appeared to be winning and generally weakened when Donald Trump’s prospects improved.

The Mexican currency hit low records immediately when the election results were announced and since then it has continued to hit low due to Trump’s efforts to persuade manufacturers to produce more in the U.S instead of Mexico.

The Mexican currency’s 4 weeks historical decline, a measure of price swings, is the worst among the global most-traded peers.

The peso has rallied 5.4$ since the inauguration of Donald Trump as the U.S president on growing belief that the selloff had increased sharply given the view that the exact details of the President’s plans remained so opaque.

The economy of this country between the United States and Central America is tied at the hip to the United States, the destination for about 80% of its major exports.

Trying to correctly forecasts where the peso will be in the near future has proven hard given the numerous uncertainties surrounding the country’s economic outlook. These sentiments were made by Mr Rodado.

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