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JPY, MXN, Reflections, Bank of Mexico, Governor, Agustin Carstens, Bank of Japan, Haruhiko Kuroda, BOJ, BOM, Currency Analysis, fx trader, forex USD MXN Price Event ChartUSD/MXN Price Event Chart

The BOM continued with its intervention with policy, auctioning $200 million4 on two occasions: 6 and 15 January before the BOM 4 February 2016 meeting at which it maintained the 3.25% overnight rate5.

The BOM frustration experienced over the Peso declined was reveled at 2016 Davos, at which Governor Carstens stated that the Peso was not reflecting fundamentals6. Indeed, he may have been correct. Bank of Japan Governor Kuroda had been experiencing the same frustration over the unrelenting strengthening of the Japanese Yen. At the 28 January 2016 Bank of Japan meeting, Governor Kuroda took markets by surprise when he announced a negative policy rate and continuance of the asset purchase program. Yet, the Yen continued to strengthen, not only against the Peso, but also against the US Dollar, the Euro, Sterling and Swiss Franc. Clearly, the trade was flight to quality.

JPY, MXN, Reflections, Bank of Mexico, Governor, Agustin Carstens, Bank of Japan, Haruhiko Kuroda, BOJ, BOM, Currency Analysis, fx trader, forex MXN JPY Price Event ChartMXN/JPY Price Event Chart

It is this point at which the MXN/JPY cross, as well as other majors, were most likely disconnected from any fundamentals.   By mid-February, the BOM was becoming more determined to stem the downward trend of the Peso. In a surprise intra-meeting action the BOM announced a move away from US Dollar auctions and towards direct FX intervention7. An undisclosed source was quoted as saying, “...We are calling the banks to ask them for prices directly and selling them dollars to the financial institutions that give us a price... ...It is through phone calls to brokers that we are selling dollars to the market...” Further, the BOM moved on ‘speculators’ increasing the target lending rate by 50 basis points to 3.75%. Governor Carstens was careful to note that “...This is not the beginning of a cycle of interest rate hikes... ...It was a way of showing our protest, our clear rejection of those levels... ...There were many other strategies that were being used and that were present in the market that were destabilizing the exchange rate and taking it to a level that was not appropriate for the performance of the Mexican economy...

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