- On Thursday, the Mexican Peso surged ahead against the US Dollar, regaining its position.
- The US dollar experienced a decline following a significant increase in Retail Sales.
- Markets continue to anticipate a Fed rate cut in September; however, robust retail sales have alleviated concerns about a slowdown.
On Thursday, the Mexican Peso (MXN) increased by 0.75 percent in comparison to the United States Dollar (USD), as the Greenback experienced a general decline in value. The United States Retail Sales came in higher than expected, which caused investors to disregard any concerns they had regarding the recent slowdown in economic activity. The markets for interest rates retreated as a result of their anticipation that the Federal Reserve (Fed) would implement two rate reductions in September.
Even though inflation rates reached 5.57% in July, the Mexican central bank, Banxico, has kept its decision to lower interest rates from 11% to 10.75%. This decision was made despite the fact that inflation rates have increased. In an interview on Thursday, Banxico Deputy Governor Omar Mejia brought attention to the alarming decline in core inflation metrics as well as the imminent slowdown in Mexico’s domestic economy.
But a limited cut was more than sufficient; it was timely and effective. Focusing solely on one data point would mean disregarding a significant amount of information that we need to consider when making decisions.
In July, Banxico’s measure of core inflation decreased to 4.05%, a slight decline from the previous month’s rate of 4.13%. The Mexican central bank anticipates that core inflation will achieve its 3% objective sometime during the fourth quarter of 2025.
The Peso Has Been Strengthened by a Positive Market Sentiment, Which Has Led to Increased Demand for the Currency
- In July, US Retail Sales experienced a significant surge of 1.0%, marking the highest level since February of 2023.
- The surge in US Retail Sales, a vital sign of a robust economy, sparked a widespread rebound in risk appetite, causing the Greenback to decline.
- Unfortunately, things are not looking great: markets are not reacting positively to a -0.6% decline in US Industrial Production in July, the worst result since November 2023.
- Rate markets have reduced expectations of a 50 basis points double cut from the Fed in September to below 25%. However, they still anticipate a 76% likelihood of at least a quarter-point rate reduction.
- The upcoming release of the University of Michigan Consumer Sentiment Index on Friday will provide investors with an additional data point to consider when making decisions regarding rate cuts. The survey response index is anticipated to increase slightly from 66.4 to 66.9.
Forecast for the Mexican Peso: With the US Dollar Weakening, the Peso Has More Flexibility to Fluctuate
The Mexican Peso notched its third consecutive increase on Thursday as the US Dollar stepped aside, paving the way for a Peso rebound. The USD/MXN pair has dropped below the 18.80 level, marking its lowest point since the start of August. As long as the current trends continue, it is now moving towards the 50-day Exponential Moving Average (EMA) around 18.33.
The Mexican Peso is set to increase its value against the US Dollar for all but one of the past seven consecutive trading days. Nevertheless, the USD/MXN is gradually declining from a significantly elevated position after the pair surged up the charts by more than 23% from the lows of 2024, reaching a 22-month peak above 20.00 in early August.