Overview of Recent Market Trends
The Mexican peso rebounded in the first trading session of this week, following three consecutive days of decline. This upswing was supported by a weakening US dollar, as traders anticipate the Bank of Mexico’s (Banxico) interest rate announcement on Thursday.
Currency Exchange Performance
The exchange rate closed at 18.3526 pesos per dollar, marking an improvement of 3.52 centavos (0.20%) compared to Friday’s record of 18.3878 pesos, according to official data from Banxico.
The dollar’s movement ranged from a high of 18.4386 pesos to a low of 18.3409 pesos. Meanwhile, the Dollar Index (DXY) from the Intercontinental Exchange, which compares the US dollar to a basket of six currencies, fell 0.33% to 97.32 points.
Focus on Fed Comments
Market participants closely monitored remarks from Reserve Federal (Fed) officials, who questioned the need for another interest rate adjustment following the previous 25-basis-point move to a 4%-4.25% range.
San Francisco Fed President Alberto Musalem and Atlanta Fed President Raphael Bostic stated that, while the rate cut last week was appropriate to manage unemployment risks, controlling inflation remains their primary concern.
Despite these comments, traders still anticipate another rate adjustment. The FedWatch tool from CME Group, which tracks fed funds futures, indicates an 89.8% probability of a rate change on October 29.
Expectations for Banxico’s Interest Rate Announcement
Domestically, this week will be marked by the Bank of Mexico’s interest rate announcement. Traders widely expect a 25-basis-point cut in the policy rate amidst weak economic performance and controlled inflation.
“The 18.50 zone, which previously acted as support for parity, may now act as resistance,” said Alexander Londoño, an analyst at ActivTrades. “Despite the upward price movement, the short- and medium-term downtrend persists,” he added.
“We expect a 25-basis-point cut from Banxico this week. Additionally, the inflation data for the first half of September and the IGAE for July could provide insights into future movements,” said Juan Carlos Cruz Tapia, CEO and founder of México Financiero.
Key Questions and Answers
- What caused the recent gains in the Mexican peso? The peso’s recovery was supported by a weakening US dollar and anticipation of the Bank of Mexico’s interest rate announcement.
- Who are the Fed officials mentioned, and what were their comments? San Francisco Fed President Alberto Musalem and Atlanta Fed President Raphael Bostic questioned the necessity of another interest rate adjustment, emphasizing that controlling inflation remains their priority.
- What is the expected outcome of the upcoming Banxico interest rate announcement? Traders widely anticipate a 25-basis-point cut in the policy rate due to weak economic performance and controlled inflation.
