Background on Key Figures and Relevance
The Mexican peso has weakened against the US dollar on the second day of the partial shutdown of the United States government. This situation stems from the ongoing negotiations between Republicans and Democrats in the US Congress over a government spending agreement. The absence of government activities not only threatens the economy but may also delay the release of crucial labor data, expected on Friday.
Current Economic Situation
As of the morning of this Thursday, the Mexican peso is depreciating against the US dollar. The local currency falls due to a stronger greenback and increased risk aversion amidst the partial government shutdown in the United States. The spot exchange rate is currently at 18.4646 pesos per dollar, representing a decrease of 9.6 centavos or 0.52% compared to the previous day’s official closing rate of 18.3686 pesos, according to Mexico’s central bank (Banxico).
The dollar’s price is fluctuating within a range, with a high of 18.4697 pesos and a low of 18.3400 pesos. Meanwhile, the Intercontinental Exchange’s Dollar Index (DXY), which measures the US dollar against a basket of six major currencies, is up by 0.20% at 97.94 points.
Impact on Economic Data and Labor Force
The ongoing government shutdown, now in its second day, has led to the paralysis of non-essential activities as no budget agreement has been reached between US Republicans and Democrats in Congress. This situation not only endangers the economy but may also postpone the release of key labor data, including nonfarm payrolls scheduled for Friday. The Bureau of Labor Statistics, responsible for publishing such data, is among the affected agencies due to the shutdown.
Market Expectations and Fed’s Interest Rate
With no government agreement on spending, market participants are seeking more clarity from indicators regarding the Federal Reserve’s (Fed) interest rate path. The weakness in employment has fueled expectations of two interest rate cuts by the end of the year. The CME’s FedWatch tool, which tracks futures trading on the Fed’s interest rate, anticipates a 25-basis-point reduction with 99% probability in the upcoming month and another one in December, lowering the key rate to 3.50%-3.75 percent.
Felipe Mendoza, market analyst for the ATFX trading platform, explained: “The Mexican peso faces a day of heightened attention on external flows and expectations for upcoming data releases.”
Recent Employment Data Uncertainty
On Wednesday, it was announced that private-sector employment in the United States unexpectedly stagnated last month. Weekly figures on new jobless claims, usually released by the government every Thursday, have not been published due to the ongoing shutdown.
Key Questions and Answers
- What is causing the Mexican peso to weaken against the US dollar? The weakening of the Mexican peso is primarily due to a stronger US dollar and increased risk aversion amidst the partial government shutdown in the United States.
- How does the US government shutdown affect the economy and data release? The ongoing negotiations between Republicans and Democrats over a spending agreement threaten the economy, while also potentially delaying crucial labor data release, including nonfarm payrolls.
- What are market expectations regarding the Federal Reserve’s interest rate? Market participants anticipate two interest rate cuts by the end of the year due to weak employment figures, with a 25-basis-point reduction likely in the upcoming month and another one in December.
- What recent employment data has been affected by the US government shutdown? Private-sector employment in the United States stagnated last month, and weekly new jobless claims data has not been released due to the ongoing shutdown.
