Market Uncertainty and Local Factors Impact Mexican Currency
The Mexican peso depreciated against the US dollar on Tuesday, recording its worst day since August. This decline occurred in a session marked by investor uncertainty over potential interest rate cuts by the Federal Reserve (Fed) in December, as Mexico’s local market anticipates the Banco de México’s (Banxico) monetary policy decision on Thursday.
Market Performance and Analyst Insights
At the close of trading, the Mexican currency ended at 18.6563 pesos per dollar, a decrease of 0.93%, or 17.16 centavos, compared to the previous close, according to central bank data. Consequently, the peso retreated to levels unseen since early September.
The US dollar index (DXY), which measures the performance of the greenback against a basket of six major currencies, rose by 0.35% to 100.06 units, its highest level since May 19.
Monex Casa de Bolsa analysts stated in a report, “The peso was affected by market nervousness due to uncertainty over US monetary policy and reduced global risk appetite.”
The dollar’s advance took place amid conflicting messages from Fed officials regarding the strength of the US economy and risks stemming from a lack of new economic data, following 35 days of the partial US government shutdown.
Despite the Fed’s recent interest rate reduction, Fed Chair Jerome Powell cautioned that there might not be further cuts in 2025, tempering expectations of another adjustment at the December meeting.
According to CME Group’s FedWatch tool, market operators now see a 65% chance of another rate cut in December, down from 94% the previous week, reflecting a shift in market bets.
Local Factors Adding Pressure to the Peso
Invex analysts, in a separate report, pointed out that the third quarter’s GDP slowdown and adjustments to Mexican exports also weighed on the peso.
“We maintain our expectation of a 18.80 pesos per dollar closing level by year-end and stable exchange rates in 2026,” they emphasized.
Moreover, the market remains vigilant regarding Banxico’s Junta de Gobierno decision, with a 25 basis points rate cut widely anticipated. Expectations for further adjustments in December persist, with analysts from Monex predicting an interest rate closing at 7% for the year.
Key Questions and Answers
- Q: What caused the Mexican peso to depreciate against the US dollar? A: The peso fell due to investor uncertainty over potential Fed interest rate cuts and reduced global risk appetite, as well as local factors like a slowing Mexican economy and adjustments in exports.
- Q: How did the US dollar index perform? A: The US dollar index (DXY) reached its highest level since May 19, at 100.06 units, reflecting the dollar’s strength against major currencies.
- Q: What did Fed officials say about future interest rate adjustments? A: Although the Fed recently lowered its interest rate, Chair Jerome Powell suggested there might not be further cuts in 2025, which moderated expectations of another adjustment at the December meeting.
- Q: What are local analysts’ expectations for the Mexican peso? A: Analysts from Invex and Monex anticipate the peso to close at 18.80 per dollar by year-end and expect stable exchange rates in 2026, with Banxico likely to cut its benchmark rate by 25 basis points and possibly making further adjustments in December.
