Skip to content USDMXN Analysis – 16-August-2024
The Mexican Peso recently traded around $18.66 (USD/MXN) pesos per US dollar, approaching the December 2022 low of 19.58. This decline was influenced by growing expectations of a more relaxed monetary policy by the Bank of Mexico.
The shift in outlook follows weaker-than-expected economic data and signals of upcoming interest rate cuts.
Consumer Confidence Takes a Hit in July
According to INEGI data, consumer confidence in Mexico dropped to 46.9 in July from 47.5 in June. This dip in sentiment reflects growing economic worries, which further pressured the peso. When consumers feel less confident about their financial future, it usually indicates slower spending and economic growth, adding to the peso’s uncertainty.
Banxico Governor Supports Interest Rate Cuts
Adding to the peso’s challenges, the Bank of Mexico Governor, Victoria Rodríguez Ceja, endorsed the recent interest rate cut to 10.75%.
Despite inflation still being at 5.57%, she pointed out that core inflation, which excludes volatile items like food and energy, has steadily decreased over the past 18 months. This trend, in her view, justifies the reduction in interest rates.
Looking Ahead: Inflation Goals and Potential Rate Cuts
Governor Rodríguez Ceja also expects temporary spikes in non-core inflation will calm down, helping the central bank reach its inflation target by late 2025. If these predictions hold, interest rate cuts could be on the horizon, potentially lowering the peso’s attractiveness to investors.
Lower interest rates typically mean lower returns on investments tied to that currency, which might cause a dip in demand for the peso.
What It Means for Investors and Consumers
For investors, the prospect of additional rate cuts suggests a cautious approach to Mexican assets, as the currency could weaken further. On the consumer side, a weaker peso could lead to higher prices for imported goods, affecting day-to-day costs. Understanding these trends can help businesses and consumers plan better for the future.
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