Dollar’s Weakness Due to Fed Rate Cut Expectations
The Mexican peso has gained ground against the US dollar at the start of this week. The local currency is advancing as the greenback weakens, with no significant economic data to be released today and anticipation of inflation reports from Mexico and the US this week.
The spot exchange rate is currently at 18.6677 pesos per dollar, compared to Friday’s close of 18.7143 pesos, according to official data from the Banco de México (Banxico). This translates to a 4.66-cent gain for the peso, or 0.25%, against the dollar.
The dollar’s movement ranges from a high of 18.7386 pesos to a low of 18.6339 pesos. The Dollar Index (DXY) from the Intercontinental Exchange, which compares the US dollar to six reference currencies, has fallen by 0.16% to 97.61 units.
Reasons for Dollar’s Weakness
The dollar is weakening in the market due to expectations that the Federal Reserve (Fed) will start cutting interest rates at its upcoming meeting, scheduled for next week. Recently observed job growth shortfalls in the US have strengthened the belief in a rate cycle.
According to CME Group’s FedWatch tool, which tracks futures on the federal funds rate, market participants are 90.2% confident of a 25-basis-point adjustment next week and 75.1% for October, according to analysts from Monex Grupo Financiero.
“Today, the Mexican peso benefits from the dollar’s retreat, as investors maintain an optimistic outlook on a rate-easing cycle by the Fed in its upcoming meetings,” the analysts stated.
Anticipation of 2026 Economic Package
Meanwhile, on the domestic front, later today, Mexico’s Secretariat of Finance will present the 2026 Economic Package to Congress, which includes the income tax law initiative, the proposed expenditure law, and the General Economic Policy Criteria.
“It will be crucial to learn about the macroeconomic assumptions, projected revenues, and expenditures,” Banco Base highlighted in a note. “The projected financing cost of debt and spending on social programs and pensions will also be significant,” they added.
Key Questions and Answers
- Q: Why is the Mexican peso appreciating against the US dollar?
- Q: What factors are contributing to the dollar’s weakness?
- Q: What is the significance of the 2026 Economic Package presentation in Mexico?
A: The Mexican peso is gaining ground against the US dollar due to the weakening of the greenback and investor optimism about an upcoming rate-easing cycle by the Federal Reserve.
A: The anticipation of the Federal Reserve cutting interest rates has led to a weakening dollar, as recent job growth shortfalls in the US have strengthened belief in a rate cycle.
A: The 2026 Economic Package, to be presented by Mexico’s Secretariat of Finance, includes the income tax law initiative, proposed expenditure law, and General Economic Policy Criteria. Key aspects to watch are macroeconomic assumptions, projected revenues and expenditures, debt financing costs, and spending on social programs and pensions.
