Mexican Peso Strengthens Against the Dollar Amid Rate Cut Bets
Last Thursday, President Donald Trump ordered tariffs on Canadian goods to rise from 25% to 35%, while granting Mexico a 90-day extension.
Quick overview
- The Mexican peso appreciated against the U.S. dollar, closing at 18.7378 pesos per dollar, driven by expectations of a Federal Reserve interest rate cut.
- The dollar traded within a range of 18.9481 to 18.7174 pesos, while the U.S. Dollar Index remained steady at 98.75 points.
- Fed President Mary Daly indicated that the time for a rate cut is approaching, with a 90% probability of a 25-basis-point cut in September.
- Domestic investment data showed a 0.9% increase in gross fixed investment in May, but a 7.1% annual decline, reflecting ongoing economic challenges.
The Mexican peso appreciated against the U.S. dollar on Tuesday, supported by growing expectations that the Federal Reserve (Fed) will cut its benchmark interest rate at its upcoming mid-September meeting.
The exchange rate closed the session at 18.7378 pesos per dollar, compared to Monday’s close of 18.9069, according to data from the Bank of Mexico (Banxico). This marks a gain of 16.91 centavos, or 0.89%, for the local currency.
The dollar traded in a range between a high of 18.9481 pesos and a low of 18.7174 pesos, while the U.S. Dollar Index (DXY), which tracks the greenback against six major currencies, held steady at 98.75 points.
Rate Cut Bets Fuel Momentum
San Francisco Fed President Mary Daly stated on Monday that with increasing signs of labor market weakness and no clear inflationary impact from tariffs, the time to lower rates is approaching.
Her remarks came after Friday’s weaker-than-expected nonfarm payrolls data, which prompted markets to significantly raise their bets on a rate cut. According to CME Group’s FedWatch Tool, there is now a 90% probability of a 25-basis-point cut in September.
Rate cut expectations from the Fed have been supportive for the peso, especially as markets await Banxico’s monetary policy decision on Thursday. Most analysts expect the central bank to cut rates by 25 basis points.
Mixed Investment Data
On the domestic front, data released Tuesday by INEGI showed gross fixed investment by Mexican companies rose 0.9% in May compared to April. However, on an annual basis, investment fell by 7.1%, highlighting persistent economic challenges.
“We acknowledge that the macro environment will remain complex in the second half of the year. However, we anticipate modest growth in domestic demand, with resilient consumption and mixed performance in investment,” analysts noted.
Strengthening Ties with Canada
In the trade arena, President Claudia Sheinbaum met on Tuesday with Canadian Foreign Minister Anita Anand and Finance Minister François-Philippe Champagne to discuss strategies for countering the impact of new U.S. tariffs.
Last Thursday, President Donald Trump ordered tariffs on Canadian goods to rise from 25% to 35%, while granting Mexico a 90-day extension to negotiate a broader trade agreement.
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