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Pound Sterling to Mexican Peso Exchange Rate Jumps on Hopes of UK-EU Trade Deal Being Formed

Pound to Mexican Peso Exchange Rate Advances Despite Demand for Riskier Currencies

News that a draft on the future relationship between the UK and EU had been agreed in principle by EU leaders left the Pound Sterling to Mexican Peso (GBP/MXN) exchange rate stronger today, but uncertainties in the outlook persist.

Since opening this week at the level of 25.84, GBP/MXN has fluctuated. The pair briefly gained earlier in the week before dipping, and on Thursday GBP/MXN was climbing again in reaction to Brexit developments.

Despite persisting concerns that the UK-EU Brexit deal lacked enough domestic support to pass through UK Parliament, the Pound (GBP) climbed as the UK and EU neared the climax of over a year of negotiations.

The Mexican Peso’s (MXN) losses versus a stronger Pound were limited, as investors have been more eager to buy risky emerging market currencies in recent sessions.

Pound (GBP) Exchange Rates Climb as UK and EU Agree in Principle to Brexit Deal

On Thursday, the UK and EU published a joint political declaration about the future relationship between nations following Brexit, and in reaction investors bought the Pound.

The announcement indicated that UK and EU leaders had agreed to the draft informally, and that a formal agreement was now highly likely to be reached during an upcoming EU summit on Sunday.

European Commission President Donald Tusk said:

‘I have just sent to EU27 a draft Political Declaration on the Future Relationship between EU and UK. The Commission President has informed me that it has been agreed at negotiators’ level and agreed in principle at political level, subject to the endorsement of the Leaders.’

Demand for the Pound was also bolstered as the draft declaration indicated that the UK and EU would look to have ‘a trading relationship on goods that is as close as possible’.

Still, the Pound outlook was limited slightly by persistent concerns about a lack of UK political support for the bill, causing concern that it could be blocked and lead to a ‘no-deal Brexit’.

On top of this, some investors were disappointed by the draft’s indication that while the UK and EU would seek a close trade relationship, it would not be frictionless.

Mexican Peso (MXN) Exchange Rate Losses Limited as Risk-Sentiment Rises

Investors have been more comfortable taking risks again this week. While risk-sentiment is still a little volatile amid global trade jitters and concerns of slowing growth, overall the long risk-off mood in markets appears to have lightened.

This has limited the Pound to Mexican Peso (GBP/MXN) exchange rate’s gains this week, as investors buy risky emerging market currencies like the Peso.

Perhaps the primary factor making investors more eager to buy riskier currencies has been speculation that the Federal Reserve’s interest rate hiking cycle could be slowing to an end.

Analysts, including Fed officials, predict that global growth could be set to begin slowing in 2019 and 2020. This has caused speculation that Fed interest rates will peak next year.

Speculation that the Fed could become more dovish next year made investors less eager to buy safe haven currencies, making emerging market currencies more appealing.

Pound to Mexican Peso (GBP/MXN) Exchange Rate to Remain Volatile to Political News

While Brexit news has had a smaller impact on markets this week, it doubtlessly remains the primary driving force of Pound (GBP) movement and this is likely to persist until the end of the week.

Friday will see the publication of Mexico’s Q3 Gross Domestic Product (GDP) growth rate stats, which could prove influential if they surprise investors.

The Mexican Peso (MXN) will remain volatile and sensitive to shifts in market demand for risky emerging market currencies, but even if risk-sentiment remains decent the Peso could weaken if upcoming Mexico data is concerning.

Mexican economic activity stats from September will be published on Friday too.

No notable UK data will be published until next week. As a result, the focus of Pound investors will be progress and potential fallout from the political declaration of the Brexit draft.

The UK and EU are set to formally finalise the Brexit deal on Sunday.

Looking ahead, the primary influence for the Pound to Mexican Peso (GBP/MXN) exchange rate outlook will be shifts in UK support for the Brexit deal, as well as speculation on whether or not the deal will be able to pass UK Parliament.