Title: Mexican Peso Ends on Losing Note as Fed Rate Hike Expectations Weigh
Despite Initially Favorable GDP Numbers for the US, Mexican Peso Stumbles
In a turn of events, the Mexican peso, which had shown promise earlier due to an unexpected expansion in the United States‘ quarterly GDP, ultimately ended up losing ground. Market operators have attributed this downward trend to their belief that robust economic data will prompt the Federal Reserve (Fed) to implement further interest rate hikes.
Figures released by the Bank of Mexico (Banxico) revealed that the Mexican currency experienced a 0.26 percent depreciation, equivalent to a drop of 4.41 cents, compared to the last recorded data. Consequently, the exchange rate closed at 16.88 pesos per dollar at the end of trading.
Throughout the day, the local currency witnessed fluctuations between a high of 16.9076 and a low of 16.7037 units per dollar.
Market Reaction to US Economic Strength
Reports from Thursday point to a thriving US economy despite interest rates reaching levels not seen in more than two decades. The Federal Reserve has been cautious about ruling out further rate hikes. If today’s robust data is any indication, it may take longer than expected before the Fed feels comfortable indicating the end of its tightening cycle. For now, indicators suggest a relatively soft economic landing. Mike Loewengart, Head of Portfolio Construction at E Trade Securities LLC, shared his insight with Bloomberg.
Dollar Performance on Thursday
As of the latest data from Citibanamex, banks are quoting the dollar at 17.15 pesos. The dollar index (dxy), which measures the US currency’s strength against a basket of six developed countries’ currencies, has risen by 0.91 percent, standing at 101.80 units.
Similarly, the Bloomberg dollar index (bbdxy) indicates a rise of 0.55 percent, with a value of around 1,217.58 points.
Bond Yields and Emerging Currencies
The 10-year bond yield for the United States currently stands at 3.93 percent, while Mexico’s 10-year bond maintains a level of 9.14 percent.
Among emerging currencies, many experienced losses, including the Hungarian forint (down 1.51 percent), South African rand (down 1.50 percent), Czech crown (down 1.26 percent), Romanian lei (down 1.15 percent), Polish zloty (down 1.12 percent), and Bulgarian lev (down 1.05 percent). The Russian ruble also observed a decrease of 0.83 percent, among others.
In conclusion, despite briefly benefiting from positive US GDP figures, the Mexican peso succumbed to prevailing market expectations of potential interest rate hikes by the Federal Reserve. The peso’s decline mirrored a broader trend among emerging currencies, with the US dollar gaining strength in comparison. The Middle Eastern and African markets were particularly affected, with several currencies experiencing significant losses.