USDMXN Analysis – 31-July-2024

The Mexican Peso recently weakened past $18.79 (USD/MXN), marking its lowest point since March 2023. This decline reflects growing concerns about Mexico’s slowing economy, which has led to speculation that the Bank of Mexico (Banxico) might adopt a more dovish monetary policy.

Slowing Economic Growth

In the second quarter ending June 2024, Mexico’s GDP grew by only 0.2%, missing market expectations of a 0.4% increase. This slowdown from the previous quarter’s 0.3% growth highlights the Mexican economy’s challenges. The lower-than-expected growth figures suggest that economic momentum is fading, raising concerns about future financial stability.

Widening Trade Deficit

Mexico’s trade deficit has reached its worst level since August 2020, further weakening the peso. The widening gap is due to significant declines in both exports and imports, exacerbated by a strong US dollar. Exports fell 5.7% year-on-year, the most significant drop in nearly four years.

This decline in trade activity reflects reduced global demand for Mexican goods and a challenging international trade environment.

• Also read: USD/JPY Fundamental Analysis – 31-July-2024

Inflation and Interest Rate Speculation

Recent inflation data for the first two weeks of July showed headline inflation rising to 5.61% year-on-year, driven by volatile components. However, core inflation remained stable, aligning with expectations of an interest rate cut. Analysts predict a 25 basis points cut in August, which could place further downward pressure on the peso.

The combination of slowing economic growth and stable core inflation suggests that Banxico might ease its monetary policy to support economic activity.

USDMXN Analysis – 31-July-2024

The weakening peso and economic indicators suggest Mexico may face continued financial challenges. The anticipated interest rate cut could provide some relief, but the underlying issues of trade deficits and slow growth need to be addressed to stabilize the economy.

Investors should closely monitor Banxico’s policy decisions, as these will significantly impact the peso’s value and broader economic landscape.

About The Author