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Mexican peso poised for best week in nearly six months

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The rally in the Mexican peso showed little sign of slowing on Friday, with the currency set to log its biggest weekly gain since late January.

The peso climbed for a seventh consecutive day as the dollar staged a broad retreat following downbeat US economic data this morning. The Mexican currency gained as much as 0.9 per cent per cent to 17.5306 per greenback, a new 14-month high.

The rise takes the peso’s advance this week to over 3 per cent, making this its best week in over six months.

Analysts have been busy revising higher their forecasts for the peso in recent weeks amid growing optimism over the outlook for Latin America’s second-largest economy. Sentiment for the peso has also been boosted by the ongoing turmoil in the Trump administration and mounting scepticism over the president’s ability to make good on his campaign threats to push through protectionist trade measures.

The country’s central bank has also provided support for the peso by aggressively raising rates by 375 points over the past 16 months.

“US administration’s soft stance on NAFTA, yield seeking behaviour and change in Banxico’s policy stance to neutral will support further MXN appreciation,” noted analysts Société Générale.

Banxico has signaled in its last rate hike in June that it will pause its tightening cycle. But bank officials have also strongly hinted that they were in no hurry to begin easing.

“So it seems that Banxico is biased towards maintaining a prudent, on hold stance, something that the central bank’s chief reiterated this week by stating that the market may be getting carried away by forecasting easing in the ‘first 6-9 months” of 2018,’” said analysts at Morgan Stanley.