USDMXN Analysis – 6-August-2024

The Mexican Peso has fallen to its lowest level since December 2022, trading past $19.21 per (USD/MXN). This decline is mainly due to a risk-off sentiment in global markets, where investors are selling off emerging market currencies because of recession fears in the US.

A weak US jobs report has added to these concerns, with expectations of a 50 basis point rate cut by the Federal Reserve in September pushing the US dollar to a seven-month low.

Domestic Economy Shows Signs of Slowing

The Mexican economy is showing signs of slowing down. The unemployment rate rose to 2.8% in June, hitting a five-month high and exceeding expectations.

Business confidence also fell to a 17-month low of 52.9 in July, suggesting a moderation in economic conditions after over three years of growth. These indicators have fueled speculation that Banxico, Mexico’s central bank, may adopt a more dovish stance.

Manufacturing Sector Contracts

Adding to the economic concerns, Mexico’s manufacturing sector contracted for the first time since September 2023. This contraction is a significant indicator of financial health, as manufacturing plays a crucial role in the country’s economy.

The contraction further highlights the challenges facing Mexico’s economy.

• Also read: USDCNH Analysis – 6-August-2024

GDP Growth Misses Forecasts

In the second quarter, Mexico’s GDP growth was just 0.2% quarter-on-quarter, missing forecasts and raising concerns of a potential economic slowdown. This slower growth rate adds to the speculation that Banxico might shift its policy to support the economy, potentially weakening the Peso further.

Final Word

The combination of domestic economic challenges and global market pressures creates a complex environment for the Mexican Peso. Investors will need to monitor both local and international economic data closely to make informed decisions.

The potential rate cut by the Federal Reserve and Banxico’s policy response will be key factors to watch in the coming months.

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