Weak US Economic Data and Banxico Rate Cut Cause Peso Decline
The Mexican peso weakened against the US dollar on Thursday as investors absorbed weak economic data from the United States and a significant interest rate cut by Mexico’s central bank, Banxico.
Dollar Price Movement
The dollar price fluctuated between a high of 19.5189 pesos and a low of 19.3269 pesos. The Dollar Index (DXY), tracked by the Intercontinental Exchange, which compares the US dollar to six other currencies, fell by 0.26% to 100.81 units.
Weak US Economic Data
In the United States, this morning’s data release showed that the Producer Price Index (PPI) fell in April, indicating a slowdown, while retail sales increased less than expected. Additionally, new applications for unemployment benefits remained steady.
“The exchange rate lost downward momentum after US economic data revised concerns about a possible slowdown in the largest economy, implying systemic risk for Mexico,” stated Monex Grupo Financiero.
Banxico Announces Another Rate Cut
Banxico, Mexico’s central bank, announced a 50 basis point cut to its reference rate, as expected by the market, and warned of potential further adjustments. The unanimous decision by the monetary policy committee placed the key rate at 8.5%.
“Although the adjustment was widely anticipated, pressure on the Mexican peso persists,” said Enrique Bazaldúa, an independent market operator. “Should buying strength continue, movements towards 19.60 in the medium term cannot be ruled out.”
Key Questions and Answers
- What caused the Mexican peso to weaken? The peso depreciated due to weak US economic data, including a decline in the Producer Price Index (PPI) and lower-than-expected retail sales, as well as a significant interest rate cut by Banxico.
- What did the US economic data show? The Producer Price Index (PPI) fell in April, indicating a slowdown. Retail sales increased less than expected, and new applications for unemployment benefits remained steady.
- What action did Banxico take regarding interest rates? Banxico cut its reference rate by 50 basis points, placing the key rate at 8.5%. The central bank also warned of potential further adjustments.
- How did these factors impact the Mexican peso? The weak US economic data and Banxico’s rate cut led to pressure on the Mexican peso, causing it to weaken against the US dollar.
