Title: Dollar Set to Resume Downward Trend in Mexico Amid Cooling US Job Creation and Decelerating Inflation
By Julio Sanchez Onofre
In a volatile foreign exchange market, the price of the dollar in Mexico is expected to continue its decline on Friday, June 7. This comes after the United States announced a greater-than-expected cooling in non-farm payrolls creation and a deceleration in inflation in Mexico for the fifth consecutive month. Both of these factors play a crucial role in the monetary policy decisions of the Federal Reserve (Fed) in the US and the Bank of Mexico (Banxico).
As of 07:58 AM Mexico City time, the exchange rate stood at 17.14 units, showing a 0.5% appreciation compared to the previous day’s closing price. This reverses the 0.11% decline recorded during the overnight session when it traded at 17.26 units.
Yesterday, the Mexican peso experienced a rebound after breaking the floor of 17.00 units on Wednesday for the first time since 2015. The session ended with the dollar closing at 17.24.
Janneth Quiroz Zamora, the director of Economic, Exchange, and Stock Market Analysis at Grupo Financiero Monex, commented, “Although it closed above the 20-day moving average, so far, the price remains within the lateral structure. To think of a change in trend, I would have to specify a weekly close at 17.40.”
The morning’s movements follow the announcement that 209,000 jobs were created in the United States in June, below the 306,000 created last month and falling short of the consensus estimate of 225,000.
Furthermore, job creation in Mexico significantly dropped to 149,000, compared to May’s 29,000, and stayed below the consensus estimate of 200,000.
The US unemployment rate slightly moderated to 3.6% from the previous 3.7%, aligning with analysts’ expectations.
Analysts from Grupo Financiero BX+ commented, “Investors are analyzing this information to see if the Fed will make a new rate increase, as indicated by having a greater tightening of monetary policy.”
At the local level, one of the most anticipated data points was the June inflation rate in Mexico. According to the National Institute of Statistics and Geography (INEGI), the National Consumer Price Index (INPC) registered [missing data], which slightly exceeded the 0.09% consensus estimate. Meanwhile, the monthly advance [missing data] exceeded the forecast of 0.27%.
On an annual basis, inflation in Mexico decreased for the fifth consecutive month, standing at 5.06% compared to the previous 5.84%, reaching its lowest level since March 2021. Furthermore, it fell to 6.89% from the previous 7.39% in May. Despite these declines, the inflation rate in Mexico remains significantly above the 3% target set by Banxico.
Jorge Gordillo Arias, the director of Economic and Stock Market Analysis at CIBanco, explained, “The data remains within the base scenario contemplated by Banxico (and by most analysts), so it is likely that it contributes to the rhetoric that the funding rate in Mexico could remain unchanged at its next meetings.”
The combination of cooling US job creation and decelerating inflation in Mexico has fueled expectations of unchanged monetary policy rates in both countries. These factors will continue to be closely monitored by investors and analysts in the foreign exchange market in the coming days.