Mexican Peso Drops Sharply on Speculation Over Rate Cuts

The local currency depreciated, briefly touching the 19 units per dollar level, in response to a weaker-than-expected retail sales report.

The Mexican peso weakened significantly on Tuesday, leading losses among its regional peers, following a disappointing local retail sales report that heightened concerns about the country’s economy.

The exchange rate closed the day at 18.9959 pesos per dollar. Compared to yesterday’s rate of 18.6985, according to data from the Bank of Mexico (Banxico), this movement represented a loss of 29.74 centavos, or 1.59%.

The dollar traded in a broad range, hitting a high of 19.0350 pesos and a low of 18.6562. Meanwhile, the U.S. Dollar Index (DXY) from the Intercontinental Exchange, which measures the dollar against six major currencies, lost 0.50%, settling at 101.37 points.

Earlier in the day, Mexico’s National Institute of Statistics and Geography (Inegi) reported an unexpected 0.5% seasonally adjusted decline in retail sales for June, marking the worst performance since January and significantly below the 0.2% growth expected by analysts.

The weak retail data intensified concerns about a slowdown in Mexico’s economy, bolstering expectations that Banxico might cut interest rates in its next meeting, reducing the currency’s appeal.

The peso was depreciating sharply towards 19 pesos per dollar as traders focused on three key factors: the retail sales report, the potential rate cut, and the yen’s appreciation. Analysts also attributed the peso’s movement to market caution ahead of the Federal Reserve’s meeting minutes release on Wednesday and Chairman Jerome Powell’s speech at Jackson Hole on Friday.