Background on Moody’s Rating Cut
On Friday, Moody’s downgraded the credit rating of the United States from “Aaa” to “Aa1,” citing concerns over the growing debt of the world’s largest economy. This move came after Standard & Poor’s and Fitch had previously lowered their ratings, making Moody’s the last of the major rating agencies to do so.
The credit downgrade reflects the high budget deficit in the United States, a concern that resonates strongly among emerging market currencies and the Euro. Despite President Donald Trump’s public disagreement with Moody’s decision and the White House’s assertion that global confidence in the U.S. economy remains strong, market reactions have not supported this stance.
“The U.S. dollar is currently at the epicenter of financial turbulence, suffering significantly from Moody’s recent decision to downgrade the country’s credit rating,” said Quasar Elizundia, a financial market strategist at Pepperstone.
Anticipation of Local Economic Data
In Mexico, traders are eagerly awaiting the release of GDP and inflation figures, scheduled for Thursday. This comes a week after the central bank reduced its benchmark interest rate by 50 basis points and warned of potential further adjustments.
Victoria Rodriguez, the central bank’s governor, stated in an interview published on Monday that while there is room to continue lowering interest rates, the bank will maintain a restrictive monetary stance for now. This outlook is positive for assets denominated in pesos.
Market Performance
On Monday, the Mexican peso appreciated against the U.S. dollar due to the broader weakness in the greenback following Moody’s surprise rating cut. The Mexican currency benefited from this weakening trend in the dollar, with the exchange rate closing at 19.3198 pesos per dollar.
Compared to Friday’s official closing rate of 19.4746 pesos per dollar, according to data from Banco de México (Banxico), the peso’s improvement amounted to 15.48 centavos or a 0.80% gain.
The dollar’s trading range on Monday was from a high of 19.4924 pesos to a low of 19.2995 pesos. Meanwhile, the Dollar Index (DXY) from the Intercontinental Exchange, which compares the dollar to a basket of six reference currencies, fell by 0.71% to 100.37 points.
Key Questions and Answers
- What caused the Mexican peso to gain against the dollar? The peso appreciated due to a broader weakness in the U.S. dollar following Moody’s surprise credit rating downgrade for the United States.
- How did Moody’s rating cut impact the U.S. dollar? The downgrade reflected concerns over the growing U.S. debt, causing significant pressure on the dollar and contributing to its weakening against other currencies.
- What economic data is Mexico awaiting? Traders are looking forward to the release of GDP and inflation figures, scheduled for Thursday, following the central bank’s recent interest rate cut.
- What is the current stance of Mexico’s central bank? Despite room for further interest rate reductions, the central bank aims to maintain a restrictive monetary policy, which is positive for peso-denominated assets.
