The Mexican Peso remained relatively stable after hitting a daily high of 19.46, with Banxico expected to cut rates to stimulate the economy. Mexico’s inflation continues to ease, which could lead to further rate cuts. The USD/MXN traded at 19.68, gaining 0.23% on Thursday, with eyes on Banxico’s monetary policy decision later in the day.
Banxico’s last meeting saw a 25 basis point rate cut to 10.75%, with expectations for another cut following the Federal Reserve’s 50 basis point cut. Analysts predict a 0.25% cut, but some expect a larger cut that could push USD/MXN towards 20.00. A higher-than-expected rate cut could benefit the US Dollar, while maintaining rates could strengthen the Peso.
US economic data showed positive figures, with final GDP numbers for Q2 2024 beating expectations and lower-than-anticipated jobless claims. Fed speakers did not comment on monetary policy. Meanwhile, Mexican political turmoil has eased ahead of the change in president. President-Elect Claudia Sheinbaum’s speech on October 1 will be closely watched for economic plans.
Market participants expect Banxico to lower borrowing costs by 175 bps by the end of 2025, according to swaps markets. The US Dollar Index remains stable at 100.90, with expectations of at least a 25 bps rate cut by the Fed. The technical analysis for USD/MXN suggests an uptrend with potential for further upside, but failure to surpass key levels could lead to a decline.
Banxico’s main role is to maintain the value of the Mexican Peso and set monetary policy. It aims to keep inflation low and stable, primarily by adjusting interest rates. The bank meets eight times a year and often follows the lead of the US Federal Reserve in setting monetary policy. Interest rate differentials between Mexico and the US play a crucial role in influencing the value of the Peso. After the Covid-19 pandemic, Banxico raised rates preemptively to prevent currency depreciation and capital outflows.
