USDMXN Analysis – 2-August-2024

The Mexican Peso weakened to over $18.93 (USD/MXN), its lowest level since March 2023. This decline is due to signs of a slowing Mexican economy and speculation that Banxico, Mexico’s central bank, might adopt a more dovish stance. A stronger US dollar added further pressure, making it more challenging for the peso to maintain its value.

Business Confidence Remains Steady

In July, business confidence in Mexico held steady at a 17-month low of 52.9. This figure, while stable, suggests moderation in economic conditions following over three years of growth. A steady confidence level indicates businesses are cautious but not overly pessimistic, reflecting the broader economic uncertainty.

Manufacturing Activity Contracts

For the first time since September 2023, manufacturing activity in Mexico contracted. The manufacturing PMI fell to 49.60 in July from 51.10, signaling a slowdown. A PMI below 50 indicates contraction, suggesting that the manufacturing sector, a crucial part of Mexico’s economy, faces challenges that could have broader implications.

GDP Growth Slows

Mexico’s GDP grew by only 0.2% quarter-on-quarter in Q2, falling short of expectations. This slower growth raises concerns about an economic slowdown. If the trend continues, it could lead to more significant economic issues, necessitating close monitoring and potential policy adjustments.

• Also read: USD/CAD Fundamental Analysis – 2-August-2024

USDMXN Analysis – 2-August-2024

Meanwhile, the US Federal Reserve held interest rates steady at its latest meeting but indicated a possible rate cut in September if inflation meets expectations. The Fed’s cautious approach could influence global markets, including Mexico’s, as it affects investor confidence and currency strength.

The combination of a weakening peso, steady business confidence at low levels, contracting manufacturing activity, and slower GDP growth points to potential economic challenges for Mexico.

If Banxico adopts a more dovish stance, it could further impact the peso and financial conditions. Investors and policymakers must closely monitor these indicators to make informed decisions and prepare for potential economic shifts in the coming months.

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