As the US Dollar faces challenges, the USD/MXN pair retraces its recent gains, trading around 20.00 during Wednesday’s European hours. This downside is attributed to the subdued US Dollar amid decreasing Treasury yields.
Traders are eagerly awaiting the US Consumer Price Index (CPI) data scheduled to be released later today. This report may offer insights into the potential magnitude of the Federal Reserve’s interest rate cut in September. The recent US labor market report has also cast doubt on the possibility of an aggressive rate cut.
Market expectations are currently leaning towards at least a 25 basis point rate cut by the Fed in September. However, the likelihood of a 50 bps rate cut has slightly decreased to 31.0%.
On the other hand, the Mexican Peso is under pressure due to concerns over proposed judicial reforms and dovish expectations for the Bank of Mexico. The recent judicial reform bill passed by Mexico’s lower house has raised worries about judicial independence and foreign investment.
Financial institutions like Morgan Stanley and Julius Baer have expressed concerns that this reform could threaten economic stability and lead to credit downgrades. The latest Consumer Price Index data for Mexico also suggests a potential interest rate cut by the Bank of Mexico at its September meeting.
Analysts believe that the combination of weak inflation data and a possible Federal Reserve rate cut indicates that Banxico is likely to lower its policy rate by another 25 basis points in September.
Analysis:
The USD/MXN pair is currently experiencing a depreciation trend due to challenges faced by the US Dollar and upcoming CPI data release. This could impact investors as it may provide insights into the scale of the Fed rate cut in September. Additionally, concerns over judicial reforms in Mexico and dovish expectations for Banxico are contributing to downward pressure on the Mexican Peso. As a result, investors should closely monitor these factors and consider their implications on their investment strategies.