Market Uncertainty Affects Peso’s Value
The Mexican peso weakened against the US dollar on Tuesday, as market participants grappled with uncertainty surrounding potential interest rate cuts by both the Federal Reserve (Fed) and the Bank of Mexico (Banxico).
Fed’s Divided Stance
The Federal Reserve officials continue to express differing views on the state of the economy, its risks, and how they should respond. This division may intensify as the Fed’s December meeting approaches, with no official data available due to the partial US government shutdown.
“The uncertainty regarding the Fed’s future actions negatively impacts emerging market currencies that are more sensitive to interest rate differentials, causing systemic weakness across the basket,” said analysts from Monex Grupo Financiero.
According to the FedWatch tool by CME, which tracks futures trading on the federal funds rate, market operators anticipate a 71.10% probability of a rate cut by the Fed in December, making it the dominant bet.
Banxico’s Anticipated Rate Reduction
In local news, traders are preparing for the Bank of Mexico’s monetary policy decision on Thursday. Market expectations are that Banxico will continue to lower borrowing costs and signal further reductions at its next meeting.
Today’s closing rate is the highest for the peso since September 8, when it ended at 18.6587 units. The currency has surpassed a crucial threshold of 18.50 pesos and now targets the next significant level at 18.75 pesos, according to Banorte.
Key Questions and Answers
- What is causing the Mexican peso to weaken against the US dollar? The primary reasons are market uncertainty over potential interest rate cuts by both the Federal Reserve and the Bank of Mexico.
- What are the differing views among Federal Reserve officials? Fed officials have varying opinions on the state of the economy, its risks, and how they should respond to these challenges.
- What is the probability of a Fed rate cut in December, according to market operators? Market operators anticipate a 71.10% probability of a rate cut by the Federal Reserve in December.
- What is expected from the Bank of Mexico’s monetary policy decision? Traders widely expect Banxico to continue lowering borrowing costs and signal further reductions at its next meeting.
- What is the significance of today’s closing rate for the Mexican peso? Today’s closing rate is the highest for the peso since September 8, surpassing a crucial threshold of 18.50 pesos and targeting the next significant level at 18.75 pesos.
