Mexican Peso Rises as Dollar Weakens After U.S. Inflation Data
Federal funds futures, tracked by CME’s FedWatch tool, show a 94.4% probability that the Fed will lower its benchmark rate by 25bps.
Quick overview
- The Mexican peso appreciated against the U.S. dollar, closing at 18.5803 pesos per dollar, a gain of 0.53%.
- This appreciation followed a weakening of the dollar after U.S. inflation data came in below expectations.
- Market expectations for a Federal Reserve interest rate cut in September have strengthened due to the soft inflation report.
- Attention is now shifting to upcoming economic reports and the Jackson Hole symposium for further insights on Fed policy.
The Mexican peso appreciated against the U.S. dollar in Tuesday’s trading session. The local currency gained ground following a weakening of the greenback after the release of U.S. inflation data, which sustained market expectations for Federal Reserve interest rate cuts.
The exchange rate closed at 18.5803 pesos per dollar, advancing 9.97 cents or 0.53% from Monday’s close of 18.6800, according to official data from Mexico’s central bank (Banxico).
The dollar traded within a range of 18.6879 pesos at its high and 18.5387 at its low. The U.S. Dollar Index (DXY), which measures the currency against a basket of six major currencies, declined 0.46% to 98.06 points.
U.S. Inflation Details
The U.S. Consumer Price Index (CPI) rose 0.2% in July, following a 0.3% increase in June. Over the 12 months through July, the CPI grew 2.7%, unchanged from June. Analysts had forecast monthly and annual increases of 0.2% and 2.8%, respectively.
With inflation data coming in below expectations, the outlook for the peso ranges from neutral to positive. The softer-than-expected report bolsters bets on a Fed rate cut in September.
The recent weak U.S. monthly employment report added support to expectations for a rate reduction at the Fed’s mid-September meeting. This was reinforced by the absence of inflationary pressures from tariffs and reduced White House intervention.
Market Awaits Greater Clarity
Federal funds futures, tracked by CME’s FedWatch tool, show a 94.4% probability that the Fed will lower its benchmark rate by 25 basis points in September, bringing it to a target range between 4.0% and 4.25%.
“This consumer inflation report doesn’t change the argument for a rate cut in September; in fact, it supports it,” said Janus Henderson, citing signs such as weak employment, consumer fatigue, and risks of economic slowdown.
With U.S. inflation data now available, attention will shift to the producer price report due Thursday and next week’s Jackson Hole symposium, where greater clarity on the Fed’s policy stance is expected.
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