In recent trading sessions, the Mexican Peso has shown weakness against the US Dollar, with the USD/MXN pair climbing over 1.40%. This movement is largely driven by expectations of further interest rate cuts by the Bank of Mexico (Banxico) at its upcoming meeting on September 26. The potential for easing monetary policy has led to an increase in the USD/MXN exchange rate, which currently stands at 19.58.
Data released in early September indicated a mixed economic outlook for Mexico. While economic activity improved in July, retail sales continued to decline for the third consecutive month. Additionally, the Instituto Nacional de Estadistica Geografía e Informatica (INEGI) reported a cooling of inflation in the first half of September, providing support for a rate reduction by Banxico.
A survey conducted by Bloomberg revealed that 20 out of 25 analysts expect Banxico to cut its interest rate by 25 basis points to 10.50%. Some analysts even predict a 50 basis point reduction, reflecting the potential impact of the Federal Reserve’s recent rate cuts. If Banxico does indeed ease its policy, this could have a negative effect on the Peso, leading to further gains for the USD/MXN pair.
Market analysts anticipate that the USD/MXN pair could continue to trend higher, with the psychological level of 20.00 in sight. Factors such as reforms in Mexico and the upcoming US elections add to the risk premium associated with the Mexican Peso. Despite periods of downside due to carry trade flows, the trend is expected to favor USD strength relative to the MXN over the coming months.
On the US side, economic data suggests a soft landing scenario for the economy, despite signs of a slowdown. Consumer sentiment in September decreased to its lowest level since August 2021, reflecting some uncertainty among market participants. Despite this, the overall outlook remains cautiously optimistic.
Moving forward, Banxico’s decision on interest rates will be a key driver for the USD/MXN pair. If the central bank opts for a rate cut, the Peso could face further downside pressure, pushing the exchange rate higher. Traders will be closely monitoring developments in both the US and Mexico as they assess the potential impact on the currency markets.
In conclusion, the Mexican Peso has experienced a decline against the US Dollar due to expectations of further rate cuts by Banxico. Economic data from Mexico and the US suggest a mixed economic outlook, with potential risks on the horizon. Market analysts anticipate further gains for the USD/MXN pair if Banxico eases its policy, setting the stage for continued volatility in the currency markets.
