- The USD/MXN could weaken as US inflation is expected to rise at a slower pace.
- The Fed could consider a rate hike if US CPI data beats expectations.
- The governor of Banxico, Victoria Rodríguez, highlighted the possibility of rate cuts.
USD/MXN appears to extend its losses for the third day in a row, trading around 17.55 during the European session on Tuesday. The pair faces bearish pressure ahead of the US CPI data as inflation is expected to rise but at a slower pace in October. Meanwhile, the forecast for the annual underlying rate remains stable.
However, if upcoming inflation data exceeds expectations, the Federal Reserve (Fed) could consider raising interest rates by 25 basis points in upcoming meetings. The data-dependent approach highlighted by Fed officials indicates that higher inflation figures could play a critical role in shaping the central bank’s decisions toward further tightening.
The governor of the Bank of Mexico (Banxico), Victoria Rodríguez Ceja, has highlighted the possibility of discussing rate cuts due to the relaxation of inflationary prospects. She mentioned that any easing of monetary policy could be gradual and not necessarily involve continued rate cuts. The Bank of Mexico board, he noted, would consider macroeconomic conditions, signaling a data-dependent approach in its decision-making.
Banxico’s decision to maintain interest rates at 11.25% is framed in the context of inflation in Mexico, which grew 4.26% year-on-year in October. This figure, slightly below the forecast of 4.28% and notably lower than the previous reading of 4.45%, likely influenced the central bank’s decision. Additionally, Banxico has committed to working towards its 3.0% inflation target by 2025, signaling a commitment to keeping monetary policy rates at their current level for some time.
Frequently asked questions about MXN
What is MXN?
The Mexican Peso is the legal tender of Mexico. The MXN is the most traded currency in Latin America and the third most traded on the American continent. 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.
What is Banxico and how does it influence the MXN?
Banxico is the Bank of Mexico, the country’s central bank. Created in 1925, it provides the national currency, the MXN, and its priority 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 banks and advises the government economically and financially. Banxico uses the tools and techniques of monetary policy to meet its objective.
How does inflation impact the MXN?
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 that affects their ability to invest and save. At a general level, inflation affects the Mexican economy because Mexico imports a significant amount of final consumption 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.
How does the Dollar influence the Mexican Peso (MXN)?
The exchange rate between the USD and the MXN affects imports and exports between the United States and Mexico, and may affect 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.
How does the Fed’s monetary policy affect Mexico?
The exchange rate between the USD and the MXN affects imports and exports between the United States and Mexico, and may affect 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.
