The Mexican peso appreciates to its highest value in 5 years.

The USD/MXN started Thursday’s session trading below 16.56. After the opening of Wall Street, the pair has fallen to 16.50, its lowest level since December 2015.

The Dollar has weakened against nearly all its counterparts following yesterday’s disappointing ISM services PMI data and remarks from Jerome Powell, Chair of the Fed, who stated that if the economy continues as it has been, all members of the institution see it likely to begin cutting rates at some point this year.

The Dollar Index (DXY) has plunged today from 104.26 to 103.91, its lowest level in two weeks. Meanwhile, the odds of an interest rate cut in June continue to decrease. CME Group’s FedWatch tool now puts them at 55.5%.

The Mexican peso is positioned around or below 16.5, indicating its significant strength. Nearshoring is the main driver behind this strength, with companies from the United States and China beginning to install their factories in the Latin American country.

Now, markets will be attentive to the release of the minutes from the latest monetary policy meeting of Banxico, seeking more clues about the future of monetary policy.

This morning, the U.S. Department of Labor reported that new unemployment benefit claims reached 221,000 in the week ending March 30, surpassing analysts’ expectations of 213,000 and accelerating from the previous week’s 212,000 (the latter figure was revised upward from the previously reported 210,000).

Thus, the 4-week average was 214,250 claims, indicating an increase of 2,750 compared to the revised average of the previous week (this figure was also revised upward by 500, from 211,000 to 211,500).

The evolution of the labor market is one of the factors that the Federal Reserve (Fed) will consider in determining when it might begin interest rate cuts, currently at a historically high range of 5.25 to 5.50%.

While markets still have uncertainty about when this will happen and the magnitude of cuts throughout this year, monetary policymakers currently anticipate three cuts, although markets increasingly bet that the first cut won’t occur until the second half.

The forecast of three cuts has strengthened after the central bank president, Jerome Powell, said yesterday that the latest employment reports have reflected greater balance in the labor market, inflation has shown a decline, albeit with a “bumpy path,” and that the latest economic data have not changed the outlook for the economy.

However, he cautioned that monetary authorities do not consider it appropriate to reduce interest rates until they have gained more confidence that inflation is sustainably heading towards the 2% target.