Mexican Peso climbs further on Thursday
|- The Mexican Peso reclaimed higher ground against the US Dollar on Thursday.
- The Greenback sold off after Retail Sales surged in the US.
- Markets still see a September Fed rate cut, but strong Retail Sales shed slowdown fears.
The Mexican Peso (MXN) climbed three-quarters of a percent against the US Dollar (USD) on Thursday after the Greenback broadly softened. US Retail Sales firmly eclipsed forecasts, causing investors to shrug off recent economic slowdown concerns. Rate markets pulled back on their bets of a double cut from the Federal Reserve (Fed) in September.
Mexico’s central bank (Banxico) is holding firm in its recent decision to cut interest rates from 11% to 10.75%, even as headline inflation figures rose to 5.57% in July. Citing a long-run slide in core inflation metrics and a broader slowdown looming over Mexico’s domestic economy, Banxico Deputy Governor Omar Mejia noted during an interview on Thursday that:
... a cut with a degree of restriction wasn’t just adequate, but opportune and efficient; to consider just one data point on the margin would mean renouncing a fair amount of information that... we must incorporate into our decisions.
Banxico’s measure of core inflation slowed to 4.05% in July, down from the previous month’s 4.13%. The Mexican central bank expects core inflation to reach its 3% target sometime in Q4 2025.
Daily digest market movers: Peso bolstered by risk-on sentiment crowding the bracket
- US Retail Sales surged to 1.0% in July, the indicator’s highest print since February of 2023.
- The jump in US Retail Sales, a firm indication of good economic health, prompted a broad recovery in risk appetite, sending the Greenback lower.
- Not all is rosy: markets are shrugging off a -0.6% contraction in US Industrial Production in July, the indicator’s worst print since November of 2023.
- Rate markets have pared back bets of a 50 bps double cut from the Fed in September to less than 25%, but they still see 76% odds of at least a quarter-point rate trim.
- Friday’s University of Michigan Consumer Sentiment Index will give one last data point for investors trying to nail down rate cut bets. The index of survey responses is expected to tick higher to 66.9 from 66.4.
Mexican Peso price forecast: Easing Greenback gives Peso room to move
The Mexican Peso chalked in a third straight gain on Thursday as the US Dollar moved out of the way to allow a Peso recovery. USD/MXN has eased below 18.80 for the first time since the beginning of August and is headed toward the 50-day Exponential Moving Average (EMA) near 18.33 as long as current trends hold.
The MXN is on pace to gain ground against the Greenback for all but one of the last seven consecutive trading days. However, USD/MXN is easing down from a very high perch after the pair ran up the charts over 23% from 2024’s lows to tap a 22-month high above 20.00 in early August.
USD/MXN daily chart
Banxico FAQs
The Bank of Mexico, also known as Banxico, is the country’s central bank. Its mission is to preserve the value of Mexico’s currency, the Mexican Peso (MXN), and to set the monetary policy. To this end, its main objective is to maintain low and stable inflation within target levels – at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%.
The main tool of the Banxico to guide monetary policy is by setting interest rates. When inflation is above target, the bank will attempt to tame it by raising rates, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN. The rate differential with the USD, or how the Banxico is expected to set interest rates compared with the US Federal Reserve (Fed), is a key factor.
Banxico meets eight times a year, and its monetary policy is greatly influenced by decisions of the US Federal Reserve (Fed). Therefore, the central bank’s decision-making committee usually gathers a week after the Fed. In doing so, Banxico reacts and sometimes anticipates monetary policy measures set by the Federal Reserve. For example, after the Covid-19 pandemic, before the Fed raised rates, Banxico did it first in an attempt to diminish the chances of a substantial depreciation of the Mexican Peso (MXN) and to prevent capital outflows that could destabilize the country.
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