Recent strength in the Mexican peso is unlikely to hold in coming months as US President Donald Trump doubles down on his protectionist stance, the latest Reuters survey of currency market strategists showed. The latest results, taken April 3-5, suggest a change in attitudes among economists and strategists, who last month mostly shrugged off the prospect of a global trade war.
Now, they seem increasingly fearful that Mexico could be caught in the crossfire between the United States and China. "Trump's stand against China shows that his threats pack a punch, which is not good news for Mexico as the NAFTA talks drag on," said Bruno Lavieri, an economist at 4E Consultoria.
The United States and China are embroiled in tit-for-tat tariffs that have rattled global financial markets. On Tuesday, the US targeted tariffs on 1,300 Chinese industrial technology, transport and medical products, prompting swift retaliation from China. Last month, the US government sharply hiked tariffs on steel and aluminum imports in a thinly-disguised swing against Chinese competition.
Mexico and Canada were exempted from those US measures, driving a 5 percent rally in the Mexican peso to a seven-month peak. Still, poll respondents were skeptical about the upswing. The peso is likely to weaken 2.2 percent to 18.5 to the dollar in 12 months, according to the median of 18 estimates. Thomson Reuters' SmartEstimate, which weighs contributions according to past performance, was even weaker than the median.