Background on Banco de México (Banxico)
Banco de México, commonly known as Banxico, is the central bank of Mexico. Established in 1925, it plays a crucial role in maintaining price stability and promoting sustainable economic growth. Banxico implements monetary policy decisions that directly impact the Mexican peso’s value against foreign currencies, such as the US dollar.
US Economic Data Strengthens the Dollar
The US economy has been releasing positive data, surpassing market expectations. This includes a decrease in weekly jobless claims to 218,000, lower than the anticipated 235,000. Additionally, the US economy expanded by 3.8% annually in Q2, surpassing expectations of a 3.3% growth rate.
These positive indicators have led analysts to speculate that the Federal Reserve (Fed) might adopt a less aggressive stance on interest rate cuts for the remainder of the year. According to the FedWatch tool from CME Group, there is an 85.5% probability that the Fed will reduce its benchmark rate by 25 basis points at its October meeting.
Banxico’s Monetary Policy Decision
As widely expected, Banxico decided to lower its benchmark interest rate by 25 basis points from 7.75% to 7.50%. This decision was made in a closely divided vote, reflecting the delicate balance between supporting economic growth and managing inflation.
“From an investor’s perspective, this decision opens the door for further compression in local short-term bond yields,” said Jaime Álvarez, vice president of investments at Skandia.
Impact on the Mexican Peso
The Mexican peso experienced two consecutive days of losses against the US dollar. This weakening trend was influenced by the combination of robust US economic data and Banxico’s monetary policy decision.
Official data from Banxico showed that the Mexican peso ended the day at 18.5052 units per US dollar, representing a depreciation of 7.76 centavos or 0.42% compared to the previous day’s closing rate.
During Thursday’s trading session, the Mexican peso fluctuated within a range of 18.40 to 18.56 pesos per US dollar, as reported by Actinver analysts.
Meanwhile, the US Dollar Index (DXY) from the Intercontinental Exchange—which compares the dollar to a basket of six currencies—rose significantly, closing with a gain of 0.63% at 98.14 units.
Key Questions and Answers
- What factors led to the Mexican peso’s depreciation against the US dollar? The Mexican peso weakened due to a combination of positive US economic data, which strengthened the dollar, and Banxico’s decision to lower its benchmark interest rate.
- How did the US economic data impact the dollar? The release of positive US economic data, such as lower-than-expected unemployment claims and a higher-than-anticipated GDP growth rate, fueled speculation that the Federal Reserve would adopt a less aggressive stance on interest rate cuts.
- What was Banxico’s monetary policy decision and its implications? Banxico reduced its benchmark interest rate by 25 basis points from 7.75% to 7.50%. This decision, made in a closely divided vote, suggests that the central bank aims to support economic growth while managing inflation.
- How did the Mexican peso perform against the US dollar during this period? The Mexican peso lost ground for two consecutive days, depreciating by 0.42% against the US dollar on the day of Banxico’s decision.
