Skip to content USDMXN Analysis – 14-August-2024
The Mexican Peso is trading at around $19 (USD/MXN), close to its lowest point since December 2022, at 19.58 per USD on August 6th. This decline is mainly due to the Bank of Mexico’s recent cautious outlook, which has gained attention following weaker-than-expected economic data.
Decline in Consumer Confidence
According to Mexico’s National Institute of Statistics and Geography (INEGI), consumer confidence in the country dropped in July, with the index falling to 46.9 from 47.5 in June. This drop reflects growing concerns among consumers about the economy’s future.
The decline in consumer confidence is crucial because it can influence spending habits and overall economic activity.
Banxico’s Rate Cut and Economic Strategy
Adding to this situation, Victoria Rodríguez Ceja, the Governor of the Bank of Mexico (Banxico), has supported a recent decision to lower interest rates to 10.75%. Despite Mexico’s headline inflation rate being 5.57%, she argued that the rate cut was necessary.
Her reasoning is based on a significant reduction in core inflation over the past 18 months, which excludes volatile items like food and energy prices. This move suggests that the central bank is focused on long-term stability rather than reacting to short-term fluctuations.
Inflation Goals and Potential Impact on the Peso
Rodríguez Ceja also mentioned that she expects temporary increases in non-core inflation to diminish over time. She remains optimistic that the inflation rate will align with the bank’s target by 2025.
However, this could lead to further interest rate cuts, making the Peso less attractive to investors. Lower interest rates typically mean lower returns on investments in Pesos, potentially leading to a weaker currency.
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