Current Market Situation
The Mexican peso has appreciated against the dollar during mid-week trading, gaining for the second consecutive day. As the market prepares for tomorrow’s release of local inflation data and the Banco de México’s (Banxico) interest rate decision, traders are actively positioning themselves.
The spot exchange rate is currently at 18.6030 pesos per dollar, marking a significant improvement from yesterday’s close of 18.7378 pesos according to the official Banxico data. This translates to a gain of 13.48 centavos or 0.72% for the peso.
The dollar’s movement is confined between a high of 18.7447 pesos and a low of 18.6011 pesos. Meanwhile, the Dollar Index (DXY) from the Intercontinental Exchange, which compares the US dollar to six reference currencies, fell by 0.35% to 98.41 points.
Betting on Interest Rates
The dollar has weakened in the market due to expectations that the Federal Reserve (Fed) will cut interest rates during its September meeting. Market participants are highly confident, with a 93.3% probability, according to the Fed Watch tool from CME, that the Fed will implement this rate reduction.
As traders gear up for tomorrow’s release of July local inflation data and Banxico’s policy decision, there is a widespread expectation that the authority will slow down its rate adjustments to 25 basis points, following four previous 50-basis-point cuts.
Positive Expectations
On a positive note, traders have also welcomed news about a meeting between Canadian and Mexican government officials. This development comes after the US announced a delay in imposing tariffs on Mexico.
“Today, the peso consolidates its gains from the previous session after some operator concerns about Mexico’s economic performance relative to the US were eased,” analysts from Monex Grupo Financiero stated in a report.
Key Questions and Answers
- What is driving the Mexican peso’s appreciation against the dollar? The peso is gaining ground due to expectations of a rate cut by the Federal Reserve and positive developments in Mexico’s relationship with the US and Canada.
- Why is the dollar weakening in the market? The dollar is losing value because of anticipation that the Federal Reserve will lower interest rates, along with reduced trade tensions between Mexico, the US, and Canada.
- What data and decisions are traders awaiting? Traders are eagerly waiting for tomorrow’s release of local inflation data and the Banco de México’s interest rate decision, expecting a more moderate pace of rate adjustments.
