Background on Moody’s Downgrade and Its Impact
On Monday, the dollar weakened, hitting a one-week low against safe-haven currencies like the yen, Swiss franc, and euro. This decline occurred despite ongoing trade tensions, following Moody’s unexpected downgrade of the U.S. credit rating from “AAA” to “Aa1” on Friday night.
The Dollar Index (DXY), tracked by the Intercontinental Exchange, which measures the greenback against a basket of six reference currencies, fell 0.31% to 100.44, marking its second consecutive day of declines.
During the session, the dollar dropped against various currencies: 0.18% versus the Japanese yen to 144.98 yen per unit, 0.61% against the Norwegian krone to 10.306 units, 0.42% against the Swedish krona to 9.6942 units, 0.8903 units against the euro, and 0.04% against the Swiss franc to 0.8351 units.
Reasons Behind Dollar’s Weakness
Gabriela Siller, director of Analysis at Banco Base, stated in a press release that the speculation against the dollar stems from uncertainty about its future as an international reserve currency, primarily due to high U.S. government debt, persistent large fiscal deficits, and threats from Donald Trump against key U.S. economic institutions like the Federal Reserve.
She further explained that new episodes of risk aversion cannot be ruled out, given expectations surrounding negotiations between China and the U.S. to ease trade tensions. However, a note from China’s Ministry of Commerce questioned the U.S.’s stance on Huawei’s AI chips, alleging that their use violates U.S. export control laws due to potential risks to the industry.
Mexican Peso Gains Against the Dollar
Meanwhile, the Mexican peso appreciated on the first trading day of the week, marking its second session with gains against the dollar. This was due to the general dollar weakness.
According to official data from Banco de México (Banxico), the Mexican currency closed at 19.3198 pesos per dollar on Monday, representing a 0.79% or 15.48 centavo appreciation.
This resulted in the currency’s highest appreciation since October 11, 2024, when it was valued at 19.2870 units.
Factors Supporting the Peso
Analysts from Monex Casa de Bolsa highlighted that the peso maintains resilience amid speculation about a U.S.-Mexico trade resolution and reduced systemic risk in the economy, given existing trade agreements and global inflation expectations.
They added that market participants are focusing on the second revision of first-quarter GDP, previously reported better than expected and alleviating concerns about a potential technical recession in the country.
Key Questions and Answers
- Q: What caused the dollar’s recent decline? A: The dollar weakened due to Moody’s downgrade of the U.S. credit rating from “AAA” to “Aa1,” coupled with ongoing trade tensions.
- Q: How did the Mexican peso perform against the dollar? A: The Mexican peso appreciated against the dollar, marking its highest gain since October 2024.
- Q: What factors support the Mexican peso’s resilience? A: The peso benefits from resilience amid speculation about a U.S.-Mexico trade resolution, existing trade agreements, and reduced systemic risk in the economy.
