- The USD/MXN weakens around 19.05 in the early European session on Wednesday.
- The United States and Mexico discussed an agreement to reduce Trump’s steel tariffs.
- Operators expect the inflation data of the US CPI in the USA. Later on Wednesday.
The USD/MXN pair remains defensive about 19.05 during the early European session on Wednesday. The Mexican peso (MXN) is strengthened against the US dollar (USD), reaching its strongest level in more than nine months, promoted by a possible commercial agreement between the United States and Mexico.
The United States and Mexico are discussing an agreement to reduce or eliminate 50% tariffs to the steel of US President Donald Trump on imports up to a certain volume, according to Reuters. However, the agreement has not been completed, although a source of the industry familiar with conversations said it would allow US companies to import Mexican steel without tariffs provided that total shipments are kept below a level based on historical commercial volumes.
The operators will be attentive to the inflation data of the US consumer price index (CPI), which will be published later on Wednesday. The general CPI is expected to show an increase of 2.5% year -on -year in May, while the underlying CPI is estimated to register an increase of 2.9% year -on -year in the same period. If the report shows softer inflation in the American economy, this could drag the dollar down.
On the other hand, the US Federal Reserve (Fed) will maintain interest rates without changes for at least a couple more months, according to reuters surveys, citing inflation risks caused by Trump’s tariff policies. All but two of the 105 economists in the Reuters survey from June 5 to 10 predicted that the US Central Bank would maintain the FED fund rate without changes in its June meeting in a range of 4.25%-4.50%, where it has been since the beginning of the year. The cautious posture of the Fed could raise the USD in the short term.
Mexican weight FAQS
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.
