Mexican Peso Drops as Powell’s Remarks and Local CB Cut Bets Weigh
The U.S. Dollar Index (DXY), which measures the greenback against a basket of six major currencies, rose 0.66% to 97.87 points.
Quick overview
- The Mexican peso depreciated against the U.S. dollar, closing at 18.4276 pesos per dollar amid expectations of continued interest rate cuts by Banxico.
- The U.S. Dollar Index rose 0.66% to 97.87 points, influenced by cautious comments from Federal Reserve Chair Jerome Powell regarding inflation and employment.
- Traders expect a 92% probability of another Fed rate cut in October, with additional reductions anticipated before the end of the year.
- Domestic inflation data showed headline consumer prices at 3.74% year-over-year, prompting speculation about further monetary easing by Banxico.
The Mexican peso depreciated against the U.S. dollar in midweek trading, pressured by a stronger greenback and expectations that the Bank of Mexico (Banxico) will continue cutting its benchmark interest rate.
The exchange rate closed at 18.4276 pesos per dollar, compared with Tuesday’s official close of 18.3428, marking a loss of 8.48 centavos, or 0.46%. During the session, the peso traded in a range between a high of 18.4567 and a low of 18.3402.
The U.S. Dollar Index (DXY), which measures the greenback against a basket of six major currencies, rose 0.66% to 97.87 points. The peso showed a high correlation with the dollar, with immediate resistance seen at the psychological level of 18.50—though a breakout is seen as unlikely absent new catalysts.
Dollar Gains on Powell’s Caution
The dollar strengthened after cautious comments from Federal Reserve Chair Jerome Powell, who stressed the need to balance concerns over persistent inflation with signs of weakening employment. Markets still anticipate further easing.
According to CME Group’s FedWatch tool, futures imply a 92% probability of another Fed rate cut in October, with at least one additional reduction expected before year-end. Traders are now awaiting Friday’s release of the U.S. personal consumption expenditures (PCE) price index, the Fed’s preferred inflation gauge, for fresh signals on monetary policy.
Local Inflation Data Fuels Banxico Bets
On the domestic front, inflation data for the first half of the month showed headline consumer prices accelerating to 3.74% year-over-year, below expectations, while core inflation rose to 4.26%.
Last month, Banxico slowed the pace of monetary easing with a 25-basis-point cut. Minutes from that meeting indicated further reductions remain on the table. The central bank is set to announce its next policy decision tomorrow, with markets widely anticipating another rate cut.
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