- The USD/MXN loses ground while the US dollar fights in the midst of an increase in the chances of the Fed cutting the interest rates.
- Operators expect the US non -agricultural payroll, which is expected to increase in 110,000 in June.
- The Mexican peso won support after Banxico indicated that additional rate cuts would be considered if inflation continues to decrease.
The USD/MXN drops after registering profits in the two previous sessions, quoting around 18.80 during the European hours on Thursday. The torque depreciates as the US dollar (USD) loses ground amid the growing expectations that the Federal Reserve (FED) will cut interest rates, driven by the disappointing National Employment Report of ADP.
The change of employment of ADP in the US fell for the first time in more than two years in June. Private sector payrolls decreased by 33,000 in June after an increase reviewed down 29,000 in May. This figure was below the market consensus of 95,000.
Operators expect labor market data, including non -agricultural payroll (NFP) of the US and average hourly gain per hour, which will be published later in the day. In addition, the ISM services PMI and the US S&P PMI will also be observed on Thursday.
The Mexican weight (MXN) received support since Banxico said that additional rate cuts would only occur as inflation softens, maintaining an attractive real interest rate. In addition, the confidence in the MXN is reinforced since the tax balance of Mexico reported a commercial surplus of 1,030 million dollars in May, driven by a 1.8% increase in non -oil exports, while remittance tickets reached a record of 5.5 billion dollars.
However, the purchasing managers index (PMI) Global S&P manufacturing of Mexico fell to 46.3 in June, compared to the previous reading of 46.7. The reading marked the weakest quarterly average since the beginning of 2021, highlighting a strong drop in new orders, since companies cited a weak demand, project delays and the effects of US tariffs. Consumer confidence for June will be observed later in the day.
Mexican peso – frequent questions
The Mexican weight (MXN) is the most commercialized currency among its Latin American peers. Its value is widely determined by the performance of the Mexican economy, the country’s central bank policy, the amount of foreign investment in the country and even remittance levels sent by Mexicans living abroad, particularly in the United States. Geopolitical trends can also affect MXN: for example, the Nearshoring process (or the decision of some companies to relocate the manufacturing capacity and supply chains closer to their countries of origin) is also considered a catalyst for the Mexican currency, since the country is considered a key manufacturing center in the American continent. Another catalyst for MXN is oil prices, since Mexico is a key exporter of the raw material.
The main objective of the Central Bank of Mexico, also known as Banxico, is to maintain inflation at low and stable levels (in or close to its 3%target, the midpoint of a tolerance band between 2%and 4%). To do this, the bank establishes an adequate level of interest rates. When inflation is too high, Banxico will try to control it by raising interest rates, which makes the indebtedness of homes and companies more cooling, thus cooling the demand and the economy in general. 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 publication of macroeconomic data is key to evaluating the state of the economy and can have an impact on the valuation of the Mexican weight (MXN). A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only attracts more foreign investment, but it can encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this fortress is accompanied by high inflation. However, if the economic data is weak, the MXN is likely to depreciate.
As an emerging market currency, the Mexican weight (MXN) tends to rise for periods of risk, or when investors perceive that the general market risks are low and, therefore, are eager to participate in investments that carry a higher risk. On the contrary, the MXN tends to weaken at times of market turbulence or economic uncertainty, since investors tend to sell higher risk assets and flee to the most stable safe shelters.
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.
