Brazil’s Federative Pact, assessing the MXN rally

Brazil’s congress will reportedly receive a plan for the Federative Pact reform next week, which would ease concerns about the public finances. But we don’t think worries that the government might break the spending cap have gone away for good. Elsewhere, the Mexican peso has been one of the best performing EM currencies recently and, while we expect it to hold up well, we see only limited scope for further appreciation.