Mexico City — The Mexican peso strengthened against the U.S. dollar on Wednesday, reflecting improved market sentiment following the release of U.S. inflation data that bolstered expectations of imminent interest rate cuts by the Federal Reserve (Fed).
The exchange rate closed the midweek trading session at 18.8303 pesos per dollar, marking a notable appreciation from the previous day’s close of 19.0017, according to data provided by the Bank of Mexico (Banxico). This appreciation of 17.14 cents, or 0.90%, underscores the peso’s resilience amid global economic uncertainty.
During the day’s trading, the dollar fluctuated within an open range, reaching a high of 19.0275 pesos and a low of 18.8009 pesos. Concurrently, the Dollar Index (DXY), which measures the U.S. currency against a basket of six major currencies, registered a modest increase of 0.05% to 102.61 points.
U.S. Inflation Data Sparks Optimism
The peso’s rally was sparked by the release of the U.S. Consumer Price Index (CPI) data earlier in the day, which showed a month-on-month increase of 0.2% for July, aligning with market expectations. This followed a 0.1% decline in June. On an annual basis, the CPI rose by 2.9%, slightly below the anticipated 3% increase and lower than the previous month’s estimate of 3%.
The inflation data reinforced the prevailing market sentiment that the Fed is likely to initiate a rate-cutting cycle at its September meeting. This expectation has been further fueled by Tuesday’s release of the U.S. Producer Price Index (PPI), another critical measure of inflation, which rose by 0.1% in July, slightly below the forecasted 0.2% increase.
“The consumer price report provided more arguments for the Federal Reserve to begin its rate-cutting cycle in September, at a time when the labor market is losing some of its momentum,” noted CIBanco in a market analysis.
Market Anticipates Fed’s Next Move
As investors digest the latest inflation figures, speculation about the magnitude of the anticipated rate cuts has intensified. According to CME’s FedWatch tool, there is now a 100% probability that the Fed will reduce interest rates in September. However, the extent of the cut remains uncertain, with 56.5% of investors expecting a 25 basis point cut, while 43.5% anticipate a more aggressive 50 basis point reduction.
Juan Carlos Cruz Tapia, a professor at the Escuela Bancaria y Comercial (EBC), remarked, “The U.S. inflation data confirmed the market narrative of greater possibilities for various Fed rate cuts this year. Range to watch: 18.70 to 19.10 pesos.”
Peso’s Outlook
The peso’s performance in the coming weeks will likely be influenced by further developments in U.S. economic data and the Fed’s policy decisions. With the U.S. labor market showing signs of slowing and inflation appearing to be under control, the possibility of rate cuts could continue to support the peso against the dollar.
However, market analysts caution that the peso remains vulnerable to external shocks, particularly from global geopolitical tensions and shifts in commodity prices. As such, investors are advised to monitor the situation closely and adjust their positions accordingly.
In the meantime, the peso’s recent gains reflect a broader trend of resilience among emerging market currencies, as investors seek higher yields in the face of slowing economic growth in developed markets.
The upcoming weeks will be critical in determining the direction of both the peso and the broader market, as the Fed’s policy decisions come into sharper focus. Investors and analysts alike will be watching closely to see how the peso navigates this period of heightened uncertainty and potential volatility.
Mexico City — The Mexican peso strengthened against the U.S. dollar on Wednesday, reflecting improved market sentiment following the release of U.S. inflation data that bolstered expectations of imminent interest rate cuts by the Federal Reserve (Fed).
