Skip to content USDMXN Analysis – January-25-2024
The Mexican peso is witnessing a resurgence, approaching the 17.2 per USD mark. This recovery is a notable shift from the one-month low it hit on January 23rd. The catalyst behind this upward movement is the latest inflation figures from Mexico and a weakening US dollar. Initially, speculation was that the Bank of Mexico (Banxico) might lean towards a more lenient monetary policy. However, this sentiment was moderated due to the unexpectedly high mid-January inflation numbers, which reported a 4.9% rise. This figure exceeded the forecast of 4.78% and marked an increase from December’s 4.46%.
Economic Challenges and Inflation Dynamics
The Mexican economy is showing signs of vulnerability under stringent monetary policies. This was highlighted by the economic activity in November, which saw a 0.5% decline from the previous month, a sharper fall than anticipated. This contraction clearly indicates the economy’s sensitivity to the current financial conditions. Additionally, the higher-than-expected inflation rate in mid-January puts further pressure on Banxico to maintain a cautious approach in their monetary policy decisions. The inflation surge, vastly surpassing forecasts, suggests a more complex economic landscape that Banxico needs to navigate.
US Dollar Influence and Global Indicators
The influence of the US dollar in this scenario cannot be overlooked. Expectations of interest rate reductions by the Federal Reserve in early 2024 have diminished. This change in outlook followed the release of promising preliminary data for S&P Global manufacturing and services PMIs. These better-than-anticipated figures have reduced impetus for the US dollar, indirectly benefitting the Mexican peso. This interplay between the US economic indicators and the Federal Reserve’s policy decisions plays a crucial role in shaping the peso’s value, illustrating the interconnected nature of global economies.
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