Mexican Peso Depreciates Against Dollar Amid Expectations of Higher Interest Rates
In a second consecutive day of decline, the Mexican peso depreciated against the US dollar. The currency was weakened by the strengthening of the greenback, fueled by expectations of higher interest rates. These expectations are being driven by bets on the upcoming monetary policy announcement of the Federal Reserve (Fed) next Wednesday.
According to official data from the Bank of Mexico (Banxico), the exchange rate ended the session at 16.9920 units per dollar. Compared to yesterday’s record of 16.8899 units, this movement indicates a loss of 10.21 cents for the peso, equivalent to 0.61 percent.
During the day, the dollar reached a maximum of 17.0487 units but settled just below the 17-peso mark by the end of the session. This is far from the week’s best level of 16.6936 on Tuesday, which hasn’t been seen in over seven and a half years.
The fall in the peso can be attributed to the rebound in the dollar. The Dollar Index (DXY), which measures the greenback against a basket of six reference currencies, rose by 0.17% to 101.06 units at the close. This marks the fourth consecutive day of gains for the index, accumulating a 1.14 percent increase this week.
The strength of the US labor market, combined with the downward trend in inflation, has led traders to speculate that the Federal Reserve may raise interest rates multiple times in the remaining months of the year. The Fed Watch tool from the CME Group indicates a 99.8% probability of a 25 basis point increase in rates to 5.25%-5.50%. Furthermore, there is a 26.6% expectation of another hike in November.
Despite the recent decline, the peso has still gained ground compared to previous periods. It remains 2.52 cents, or 12.90 percent, higher than its close of 19.5089 in December.
Looking ahead to next week, market participants will closely watch the Fed’s announcement and the comments of Jerome Powell, the president of the central bank, regarding the fight against inflation. In Mexico, the consumer inflation data for the first half of the month will also be released, which is relevant for Banxico’s decision-making.
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