Peso Strengthens Ahead of Weekend
From 18.6615 pesos per dollar last Friday, the exchange rate rose 5.28 centavos, equivalent to a 0.28% depreciation.
Quick overview
- The Mexican peso strengthened against the dollar, closing at 18.7143 pesos per dollar due to a weaker greenback.
- U.S. labor market data showed nonfarm payrolls rose by only 22,000 in August, below expectations, raising concerns about a cooling economy.
- Market expectations for Federal Reserve rate cuts increased, with a 70% probability of a 50 basis point cut by the end of October.
- Despite the peso's recent gains, analysts caution that further labor market deterioration could lead to recession fears.
The Mexican peso strengthened against the dollar on Friday, supported by a weaker greenback as investors priced in additional Federal Reserve rate cuts following softer-than-expected U.S. labor market data.
The exchange rate closed at 18.7143 pesos per dollar, compared to Thursday’s 18.7402, according to official data from Banco de México (Banxico). That represented a gain of 2.59 centavos, or 0.14%, for the local currency.
The dollar traded in a range between a high of 18.7382 and a low of 18.5817 pesos. Meanwhile, the U.S. Dollar Index (DXY), which measures the greenback against a basket of six major peers, slipped 0.53% to 97.77 points.
U.S. nonfarm payrolls rose by just 22,000 in August, well below the 75,000 expected by analysts, while the unemployment rate climbed to 4.3% from 4.2% in July—reinforcing concerns over a cooling labor market.
Throughout the week, disappointing employment figures have fueled bets on deeper rate cuts beyond this month. According to CME Group’s FedWatch tool, markets now assign a 70% probability that the Fed will lower rates by a total of 50 basis points by the end of October.
Mexican Peso Outlook and Projections
In the near term, dollar weakness and a favorable interest-rate differential support the peso. However, analysts warn that risk assets could suffer if signs of labor market slowdown spill over into the broader economy.
The market seems to be in ‘bad news is good news’ mode, but caution is warranted. If upcoming data confirm further deterioration, today’s optimism could quickly turn into recession fears.
On a weekly basis, despite rate cut expectations, the peso posted a modest decline. From 18.6615 pesos per dollar last Friday, the exchange rate rose 5.28 centavos, equivalent to a 0.28% depreciation.
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