The USD/MXN pair continues its downward trend for the third consecutive session, trading around 18.90 in late Asian trading on Friday. This decline comes as a surprise, considering the Bank of Mexico’s decision to cut the benchmark interest rate to 10.75% from 11.00% at Thursday’s meeting.
Despite the rate cut, inflation in Mexico is on the rise, with the 12-Month Inflation Rate reaching 5.57% in July, the highest level since May 2023. Core Inflation also saw a slight increase, surpassing market expectations.
On the other hand, the US Dollar is facing challenges amid speculation of a rate cut by the Federal Reserve in September. The US Dollar Index is currently hovering around 103.20, with declining US Treasury yields putting pressure on the currency.
Despite these factors, the US Dollar could find support from safe-haven flows amidst escalating tensions in the Middle East. Geopolitical conflicts in the region are driving investors towards safe-haven assets, potentially limiting the downside for the Greenback.
Analysis:
The recent developments in the USD/MXN pair and the broader financial markets highlight the impact of central bank decisions and geopolitical tensions on currency movements. While the rate cut by Banxico initially led to a decline in the USD/MXN pair, rising inflation and global uncertainties are providing some support to the US Dollar.
Investors should closely monitor upcoming economic data releases, central bank policies, and geopolitical developments to make informed decisions about their investments. Understanding the factors influencing currency movements can help individuals and businesses navigate volatile market conditions and protect their finances.