MUFG analysts highlight crowded positioning in the peso as USD/MXN falls to its lowest level since June 2024 amid strong carry demand.
The Mexican peso has extended gains as USD/MXN broke below 17.00 for the first time since June 2024, driven by low FX volatility and strong carry trade demand. Analysts note that robust economic growth, persistent inflation, and Banxico’s steady 6.50% policy rate continue to support the currency’s appeal.
Implied volatility for USD/MXN remains near multi-year lows, reinforcing the peso’s attractiveness for carry trades. However, positioning is increasingly crowded, raising risks of a sharp reversal if U.S. monetary policy shifts or volatility spikes.
MUFG analysts indicated they may revise their USD/MXN forecasts lower, citing the peso’s stronger-than-expected performance. The trade’s popularity could amplify downside risks if sentiment shifts abruptly.