Market Fluctuations and Trump’s Fiscal Policy
The Mexican peso weakened against the US dollar during mid-week trading, following a three-day winning streak that saw gains of over 1% and pushed it to its lowest level since mid-October.
The exchange rate ended the day at 19.3716 pesos per dollar, marking a decrease of 9.59 centavos or 0.50% from the previous close of 19.2757 pesos, according to official data from Mexico’s central bank, Banco de México (Banxico).
The dollar’s price fluctuated between a high of 19.3944 pesos and a low of 19.2593 pesos, while the Intercontinental Exchange’s Dollar Index (DXY) fell 0.43% to 99.60 points.
Uncertainty Surrounding US Trade and Fiscal Policy
Market uncertainty stems from traders’ caution as they await information on US trade negotiations with partners and the legislative process of President Donald Trump‘s controversial fiscal project.
“All attention is now on Trump’s attempt to pass the fiscal law, as the final agreement will significantly determine how much the US deficit will increase in upcoming years,” stated CIBanco in an analysis note.
Analysts have reported in US media that Trump’s plan could add $3 to $5 trillion to the nation’s $21.9 trillion debt. Moody’s downgraded the US credit rating on Friday, citing its high debt.
“This week’s largest traders are suggesting a short-term operating range of 19.25 to 19.45 pesos per dollar. Several brokerages include in their expectations a further weakening of the dollar,” said Juan Carlos Cruz Tapia, a financial consultant.
“The rating cut has spurred capital flight to emerging economies. If uncertainty persists and the trend continues, we might see the exchange rate at 19 or even 18.50 pesos, unseen since August,” explained Diego Avilés, Capitaria’s executive.
Anticipation of Local Data Releases
On the domestic front, Mexico’s GDP and inflation figures are expected to be published tomorrow, a week after the Banco de México reduced its key interest rate by half a percentage point, warning that further similar cuts could be considered.
Key Questions and Answers
- What caused the Mexican peso to weaken against the US dollar? The peso’s decline is attributed to market uncertainty surrounding US trade negotiations and the progress of President Donald Trump’s contentious fiscal project.
- How much could Trump’s fiscal plan increase the US debt? Analysts suggest that Trump’s plan could add $3 to $5 trillion to the current US debt of $21.9 trillion.
- What impact has the credit rating downgrade had on Mexico’s economy? Moody’s recent downgrade of the US credit rating has led to capital flight from emerging economies, potentially causing the Mexican peso to drop to 19 or even 18.50 pesos per dollar.
- What local economic data is expected to be released soon? Mexico’s GDP and inflation figures are anticipated to be published, following the Banco de México’s recent half-point reduction in its key interest rate.
