Mexican Peso Depreciates Amidst Fed Rate Cut Speculations
- The Mexican Peso dropped over 0.80% against the US Dollar as traders awaited the Federal Open Market Committee (FOMC) decision on interest rates.
- Expectations are high for a rate cut of at least 108 basis points by the end of 2024, potentially impacting the strength of the US Dollar.
- Mixed Q2 data in Mexico and concerns over judicial reform may reduce investment attractiveness, contributing to Peso volatility.
Market Analysis
During the North American session on Wednesday, the Mexican Peso faced downward pressure against the US Dollar, trading at 19.26 after reaching a low of 19.06. The focus remains on the FOMC meeting and the potential rate cut decision.
FOMC Expectations
Traders are anticipating a rate cut, with odds shifting to a 55% chance of a 25-basis-point cut and a 45% chance of a 50-basis-point cut. The futures market suggests a total rate reduction of 108 basis points by the end of 2024.
Impact on USD/MXN
The interest-rate differential between Mexico and the US is expected to widen, putting downward pressure on the USD/MXN pair. However, this trend may be short-lived as Banxico is also expected to lower rates by 0.25% in September.
Q2 Data and Investment Concerns
Aggregate Demand and Private Spending in Mexico contracted in Q2, raising concerns about the economy’s growth. Additionally, worries over judicial reform and investment attractiveness could further impact the Peso’s stability.
Daily Digest: Market Movements and Economic Indicators
- USD/MXN is influenced by market sentiment and expectations for the Fed rate cut.
- Mexico’s Q2 data shows a decline in Aggregate Demand and Private Spending, signaling economic challenges.
- US Building Permits and Housing Starts data reflect positive growth in August.
USD/MXN Technical Outlook
The USD/MXN uptrend persists, with potential resistance levels at 19.50, 20.00, and 20.22. Support levels include 19.15, 19.02, and the 50-day SMA at 18.99.
Mexican Peso FAQs
- The value of the Mexican Peso is influenced by the country’s economic performance, central bank policy, foreign investment, and geopolitical trends.
- Banxico’s objective is to maintain low and stable inflation through interest rate adjustments, impacting the Peso’s strength.
- Macroeconomic data releases and market sentiment play a crucial role in determining the MXN valuation.
- MXN tends to perform well during risk-on periods and weakens during market turbulence.