- USD/MXN continues to lose ground due to the dovish tone surrounding the Fed.
- The US dollar’s fall is limited by improving Treasury yields.
- The Mexican peso could struggle as traders expect Banxico to take a dovish stance on its policy outlook.
The USD/MXN is extending its losses from the previous session, trading around 18.80 during European hours on Thursday. This drop in the USD/MXN could be attributed to rising expectations of at least a 25 basis point rate cut by the US Federal Reserve (Fed) in September.
The US Dollar (USD) remains tepid ahead of the release of the US Initial Jobless Claims and Retail Sales data scheduled for Thursday. The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six other major pairs, received support from improving Treasury yields. The DXY is trading around 102.60 with 2-year and 10-year US Treasury bond yields standing at 3.95% and 3.82%, respectively, at the time of writing.
The moderate rise in the annual US Consumer Price Index (CPI) has sparked debate over the magnitude of a possible Fed rate cut in September. Traders favor a more modest 25 basis point reduction, with a 60% probability, while a 50 basis point cut is still on the table. According to CME FedWatch, there is a 36% chance of the larger cut occurring in September.
In Mexico, data last week showed that INEGI’s Consumer Confidence Index fell to 46.9 in July from 47.5 in June, which has contributed to a dovish outlook from the Bank of Mexico (Banxico). In addition, Banxico Governor Victoria Rodriguez Ceja backed the recent interest rate cut to 10.75%. Although headline inflation is at 5.57%, she defended the rate cut highlighting the fall in underlying prices over the past 18 months.
Traders are expected to keep a close eye on June Retail Sales data, due out on Tuesday. Later in the week, attention will turn to inflation data for the first half of the month and Banxico’s Monetary Policy Meeting Minutes, both scheduled for release on Thursday.
Mexican Peso FAQs
The Mexican Peso is the legal currency of Mexico. The MXN is the most traded currency in Latin America and the third most traded currency in the Americas. The Mexican Peso is the first currency in the world to use the $ sign, prior to the later use of the Dollar. The Mexican Peso or MXN is divided into 100 cents.
Banxico is the Bank of Mexico, the country’s central bank. Created in 1925, it provides the national currency, the MXN, and its primary objective is to preserve its value over time. In addition, the Bank of Mexico manages the country’s international reserves, acts as a lender of last resort to the banking sector, and provides economic and financial advice to the government. Banxico uses the tools and techniques of monetary policy to achieve its objective.
When inflation is high, the value of the Mexican Peso (MXN) tends to decrease. This implies an increase in the cost of living for Mexicans, which affects their ability to invest and save. In general, inflation affects the Mexican economy because Mexico imports a significant amount of final consumer products, such as gas, fuel, food, clothing, etc., and a large amount of production inputs. On the other hand, the higher the inflation and debt, the less attractive the country is for investors.
The exchange rate between the USD and the MXN affects imports and exports between the United States and Mexico, potentially affecting demand and trade flows. The price of the Dollar against the Mexican Peso is affected by factors such as monetary policy, interest rates, the consumer price index, economic growth and some geopolitical decisions.
The exchange rate between the USD and the MXN affects imports and exports between the United States and Mexico, potentially affecting demand and trade flows. The price of the Dollar against the Mexican Peso is affected by factors such as monetary policy, interest rates, the consumer price index, economic growth and some geopolitical decisions.
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.
