Mexican peso weakens per USD as cooling inflation fuels rate cut speculation
Declining economic data in Mexico suggests the possibility of more accommodating monetary policy ahead, which could lead to lower interest rates and weaker peso.
Key points
- MXN weakened past 19.900 per USD, nearing December 2022 low of 19.580
- Mexico's economy grew only 0.2% in Q2 2024, marking two quarters of slow growth
- Annual core inflation rate in Mexico slowed to 3.98%, below the expected 4.06%
- Potential for a more accommodating monetary policy in Mexico due to slow growth and cooling inflation
MXN weakens past 19.9 per USD
The Mexican Peso (MXN) has weakened past 19.940 per USD, surpassing the December 2022 low of 19.580. This downtrend came shortly after Mexico's lower house of Congress approved a controversial judicial reform, allowing for election of judges under popular vote. This decision likely weakened investors' security in their investments in Mexico, contributing to this weak trend of the dollar-peso. This trend supports dovish arguments for the Bank of Mexico, suggesting that the central bank may consider easing monetary policies.
Mexico’s economy registers minimal growth
Mexico's economy grew by only 0.2% in the second quarter of 2024, marking two consecutive quarters of slow growth. This sluggish performance highlights challenges in maintaining economic momentum.How does the current state of the Mexican economy affect this?
The annual core inflation rate in Mexico slowed to 3.98%, down from 4.02% in July, and fell short of the expected 4.06%. This indicates a potential inflation cool-off, which could lead to more accommodating monetary policies from the Bank of Mexico. For forex traders, lower inflation rates can signal a potential for lower interest rates, which can affect currency strength.Where next for the Mexican peso?
With Mexico’s modest economic growth and cooling inflation, there is potential for a more accommodating monetary policy in the near future. This could result in lower interest rates, which generally lead to a weaker currency. In 2023, USD/MXN saw a high of 19.460 and a low of 16.690, while in 2022, it ranged from a high of 21.360 to a low of 19.140. There is also the possibility of a rebound from this slowdown, which would further tighten economic policy; forex traders should watch for signals from the Bank of Mexico and other economic indicators to gauge the peso's future direction.How to trade USD/MXN
- Open an account to get started, or practice on a demo account
- Choose your forex trading platform
- Open, monitor, and close positions on USD/MXN pairs
Trading forex requires an account with a forex provider like tastyfx. Many traders also watch major forex pairs like EUR/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.
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