- The US dollar remains downward in the midst of greater hopes of relief by the Fed.
- A weak GDP and mixed unemployment applications compensate for the impact of the Bank of Mexico Rate cut on Thursday.
- The US PCE price index is expected to show that inflation remains at moderate levels.
The Mexican peso is quoted with marginal profits on Friday, appreciating for the fifth consecutive day and on the way to a weekly rally of 2.4% since the weakness of the US dollar has compensated for the impact of an rate cut of 50 basic points by the Bank of Mexico.
The USD/MXN remains stable below the level of 19.00 after falling from the maximum of Monday at 19.35, a few PIPs of the minimum of 11 months, in 18.82 reached in mid -June, with all eyes in the publication of the US PCE Price Index of the US PCE, scheduled for later today.
The weakness of the US dollar continues to drive the markets on Friday. With the geopolitical tensions in the rearview mirror, the approach has returned to the macroeconomic front, and the recent US data along with the break between the US president and the president of the Fed, Jerome Powell, are undermining the USD confidence.
Weak US data feed hopes for feat cuts by the Fed
On Thursday, the final reading of the Gross Domestic Product of the United States revealed that the economy contracted at a rhythm of 0.5% in the first quarter, beyond -0.2% seen above, mainly due to the weak consumption after Trump’s tariffs.
Apart from that, the weekly unemployment data revealed that unemployment requests are maintained at their highest levels since the end of the pandemic, adding evidence of a weakened labor market and increasing the pressure on the Fed to reduce interest rates in the coming months.
In this context, the US PCE price index is expected to be scheduled for later today, show that the impact of Trump tariffs has not yet leaked to consumer prices, which could pave the way for greater relief by the Fed and add sale pressure on the US dollar.
In Mexico, the Central Bank cut the interest rates in 50 basic points, as expected widely, on Thursday and pointed to additional cuts in the future, since consumer prices confirmed its deflationary trend, although at a slightly slower pace than expected.
The USD/mxn is expected to depreciate further – I found it Générale
Société’s currency team Générale sees the torque heading to lower levelswith limited rising attempts below 19.44: “The downward movement phase will probably extend. The next objectives are found in the minimum of August 2024 of 18.60/18.41 and the projection in 18.15.”
BANXICO FAQS
The Bank of Mexico, also known as Banxico, is the central bank of the country. Its mission is to preserve the value of the Mexican currency, the Mexican weight (MXN), and set the monetary policy. For this, its main objective is to maintain low and stable inflation within the target levels – in or close to its 3%target, the midpoint of a tolerance band between 2%and 4%.
The main Banxico tool to guide monetary policy is the fixation of interest rates. When inflation is above the goal, the bank will try to control it by raising the rates, which makes the debt of homes and companies more expensive and, therefore, cools the economy. The highest interest rates are generally positive for Mexican weight (MXN), since they lead to higher yields, which makes the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken the MXN. The rate differential with the dollar, or the way in which Banxico is expected to set interest rates compared to the United States Federal Reserve (Fed), is a key factor.
Banxico meets eight times a year and its monetary policy is very influenced by the decisions of the United States Federal Reserve (Fed). Therefore, the decision -making committee of the Central Bank usually meets a week after the Fed. In this way, Banxico reacts and sometimes anticipates the monetary policy measures set by the Federal Reserve. For example, after the Covid-19 pandemic, before the Fed raised the rates, Banxico first did it in an attempt to reduce the possibilities of a substantial depreciation of the Mexican weight (MXN) and avoid capital outputs that could destabilize the country.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
