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The Mexican peso experienced a recovery, moving closer to the 17.40 mark against the US dollar, following three consecutive sessions of decline. This shift primarily reflects a near-term correction after last week’s sharp depreciation caused by a widespread strengthening of the US dollar. The initial decline was sparked by the nomination of Kevin Warsh as the prospective Federal Reserve Chair, coupled with robust US economic data that increased US yields and the opportunity cost associated with holding peso positions. This situation led to the unwinding of popular carry trades. In Mexico, the peso's retreat was further supported by indications that the nation’s growth remains moderate despite a rebound in the fourth quarter. This development solidifies expectations that Banco de México will adopt a cautious approach to easing monetary policy, having reduced the policy rate to 7% in December, thus gradually closing the real yield gap that had previously supported the "superpeso." Additionally, significant profit-taking following January's notable appreciation contributed to exacerbating the peso's decline.
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