Jerome Powell’s Comments Boost the Dollar
The Mexican peso is losing ground against the US dollar on this Wednesday morning. The local currency is giving up ground as the greenback strengthens globally and following the release of a local inflation report that supports expectations for another interest rate cut by Banxico.
The spot exchange rate is currently at 18.4181 pesos per dollar, marking a decrease of 7.53 centavos (0.41%) from yesterday’s closing rate of 18.3428 pesos set by the Banco de México (Banxico).
The dollar’s price is fluctuating between a high of 18.3869 pesos and a low of 18.3016 pesos. The Intercontinental Exchange’s Dollar Index (DXY) has risen by 0.69% to 97.90 points, comparing the US currency with six benchmark currencies.
Since dipping to its lowest level in nearly a week, the dollar has been rising after Reserve Chair Jerome Powell expressed caution about further interest rate reductions, although futures markets still anticipate two more adjustments this year.
Market participants now look forward to the release of the personal consumption expenditure (PCE) price index data in the United States on Friday, which is the Federal Reserve’s preferred inflation gauge. Traders are seeking further clues about the future of monetary policy.
“We still believe that the balance of risks is tilted against the dollar until the release of the core PCE data later in the week. A monthly rate of 0.2% would solidify expectations for two further adjustments,” said Francesco Pesole, a strategist at ING.
Local Inflation Data Supports Another Rate Cut
On the domestic front, investors are absorbing an inflation report that showed Mexico’s consumer price index accelerated to 3.74% in the first half of September, though it came in below expectations. The underlying inflation increased to 4.26%.
Last month, Banxico moderated the magnitude of interest rate cuts with a quarter-point reduction. According to the meeting’s minute, the governing board considers the possibility of further reductions moving forward.
Banxico’s next decision is scheduled for Thursday, and the market expects another 25 basis point cut. “Today’s data further justifies a 25 basis points rate reduction by Banco de México in their upcoming decision on Thursday,” noted Pantheon.
Key Questions and Answers
- What is causing the Mexican peso to weaken against the US dollar? The peso is losing ground due to a strengthening US dollar and local inflation data that supports expectations for another interest rate cut by Banxico.
- Who is Jerome Powell, and why are his comments impacting the currency market? Jerome Powell is the Chair of the Federal Reserve. His cautious stance on further interest rate reductions has led to a rise in the US dollar, affecting currency markets, including the Mexican peso.
- What is the significance of the local inflation report? The report showed that Mexico’s consumer price index accelerated to 3.74% in the first half of September, with underlying inflation increasing to 4.26%. This data supports expectations for another interest rate cut by Banxico.
- What is the expected outcome of Banxico’s upcoming decision? The market anticipates another 25 basis point cut in interest rates by Banxico, scheduled for Thursday.
