Background on the Mexican Peso and its Recent Performance
The Mexican peso has been strengthening against the US dollar in recent trading sessions. This appreciation is due to a weakening dollar, following the release of US inflation data that aligns with market expectations for further adjustments to the Federal Reserve’s interest rate.
US Inflation Data and its Impact on the Dollar
The Personal Consumption Expenditure (PCE) price index, a preferred inflation measure by the Federal Reserve, increased 0.3% in August and rose 2.7% year-over-year. These figures support the market’s anticipation of two more interest rate cuts by the Fed this year.
- Market Expectations for Fed Rate Cuts: According to the CME’s Fed Watch tool, which tracks futures on the federal funds rate, there is an 85.5% probability of a 25-basis-point cut by October. The likelihood of another rate adjustment in November stands at 67.3%.
- Investor Confidence in Gradual Rate Adjustments: Felipe Barragán, a research strategist at Pepperstone, stated that the inflation data “was enough to keep pressure on the dollar, as investors saw no reasons for the Fed to deviate from its gradual rate adjustment path.”
Factors Contributing to the Mexican Peso’s Recovery
The peso regained ground after the US dollar gained strength due to signs of resilience in the American economy and following the confirmation of a 25-basis-point reduction in the Bank of Mexico’s interest rate. This rate cut diminished the attractiveness of local debt assets.
Current Exchange Rate and Market Dynamics
The spot exchange rate currently stands at 18.3725 pesos per dollar, representing a 13.27-cent gain or a 0.72% increase compared to yesterday’s official closing rate of 18.5052 pesos per dollar, according to Banxico data.
The dollar’s trading range is between a high of 18.5136 pesos and a low of 18.3687 pesos. Meanwhile, the Intercontinental Exchange’s Dollar Index (DXY), which compares the US dollar to six benchmark currencies, fell 0.27% to 98.19 units.
Conclusion
The Mexican peso’s recent gains against the dollar can be attributed to weakening US currency following favorable US inflation data and expectations of further Federal Reserve interest rate cuts. Investors remain confident in the Fed’s gradual rate adjustment path, supporting the peso’s recovery.
