Market Volatility and U.S. Tariff Increases
The Mexican peso experienced a slight decline against the U.S. dollar in the final session of the week, as market anxiety escalated due to increased tariffs imposed by the United States on numerous trading partners, including key countries like Canada, Brazil, India, and Taiwan.
Tariffs Imposed by Trump
President Donald Trump granted Mexico a 90-day extension before implementing tariffs on its imports to negotiate a long-term agreement. However, he raised tariffs on several partners, causing concern over potential repercussions.
Weakening U.S. Employment Figures
Following the release of non-agricultural employment data in the U.S., which showed minimal growth in July and a slight increase in unemployment, market participants raised their expectations to 90% that the Federal Reserve would cut interest rates in September. This was an increase from 45% prior to the report, which would support the Mexican peso amidst the Bank of Mexico’s rate reductions.
Significant Weekly Decline
On a weekly basis, the Mexican peso suffered substantial losses. Compared to last Friday’s closing rate of 18.5469 units, this week’s movement represented a cumulative drop of 34.17 centavos, or 1.84%, for the Mexican currency.
Banxico’s Year-End Forecast
According to a survey released by Banxico (Mexico’s central bank) on this Friday, the exchange rate is projected to close the year at 19.80 units per dollar, indicating a decrease of approximately 4.80% from its current session close. This forecast is an improvement over the previous survey’s expectation of 20.13 pesos per dollar.
Key Questions and Answers
- What caused the Mexican peso to fall against the U.S. dollar? The decline was due to market volatility stemming from increased tariffs imposed by the United States on various trading partners, including key countries like Canada, Brazil, India, and Taiwan.
- How did the U.S. employment data affect the Mexican peso? The relatively weak U.S. employment figures led market participants to raise their expectations that the Federal Reserve would cut interest rates in September, which would support the Mexican peso.
- What was the extent of the Mexican peso’s weekly decline? The Mexican peso experienced a significant weekly drop, falling by 34.17 centavos or 1.84% compared to the previous Friday’s closing rate.
- What does Banxico’s year-end forecast suggest about the Mexican peso? According to Banxico’s survey, the Mexican peso is expected to close the year at 19.80 units per dollar, representing a decrease of around 4.80% from its current session close.
