Mexican Peso Pulls Back After Touching One-Year High
Markets also digested the minutes of the latest Federal Reserve meeting, which showed that most members expect rate cuts later this year.
Quick overview
- The Mexican peso closed lower at 18.6284 per U.S. dollar after reaching its strongest level in nearly a year.
- Core inflation in Mexico accelerated to 4.24%, raising speculation that the central bank may pause interest rate cuts.
- Traders are closely monitoring the 18.50 support level for the peso, with potential implications for future movements.
- The latest Federal Reserve minutes indicate a cautious approach to rate cuts, with most members favoring a wait-and-see strategy.
The Mexican peso ended lower on Wednesday, retreating after earlier reaching its strongest level in nearly a year, supported by a rebound in core inflation and speculation that the central bank may pause interest rate cuts.
The currency closed the session at 18.6284 per U.S. dollar, compared to 18.5943 in the previous session, according to data from Banxico. This represents a decline of 3.41 centavos, or 0.18%.
During the day, the dollar traded in a narrow range between 18.6411 and 18.5517 pesos. Meanwhile, the U.S. Dollar Index (DXY)—which measures the greenback against six major currencies—rose 0.04% to 97.54 points.
Inflation Surge Fuels Rate Pause Speculation
Mexico’s National Consumer Price Index (CPI) showed that headline inflation moderated in June to 4.32%, after four consecutive months of increases. However, core inflation accelerated to 4.24%, its highest level since April 2024—a sign of persistent price pressures in essential goods and services.
This data has prompted renewed speculation that Banxico, which cut rates by 50 basis points in June, may pause further easing in July, choosing to wait for clearer signs before making another move.
Technical Support Levels in Focus
While a potential pause could help maintain Mexico’s favorable interest rate differential, it would also mark a temporary halt to the central bank’s expansionary policy. Markets reacted strongly to the inflation data, with the peso briefly breaching a key support level near 18.55. Traders are now watching the 18.50 level closely; a clean break could open the path toward 17.80, according to technical analysts.
Fed Minutes Signal Patience on U.S. Rate Cuts
Markets also digested the minutes of the latest Federal Reserve meeting, which showed that most members expect rate cuts later this year, but only two currently support easing as early as this month.
“With economic growth and the labor market still solid, and monetary policy viewed as moderately or slightly restrictive, participants generally agreed they were in a good position to wait for more clarity on the outlook,” the Fed minutes said.
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