Dollar Weakens, Mexican Peso Surges—Markets Eye Next Moves
The peso’s resilience came despite Banxico lowering its benchmark rate by 25 basis points this week to 7.50%, following expectations.
Quick overview
- The Mexican peso appreciated against the U.S. dollar, closing at 18.3602 pesos per dollar, a 0.78% increase.
- This appreciation was influenced by weaker U.S. inflation data, which maintained expectations for interest rate cuts.
- The U.S. Personal Consumption Expenditures price index rose 0.3% in August, supporting market bets for two more rate cuts this year.
- Despite a recent rate cut by Banxico, the peso showed resilience due to high real yields compared to other emerging markets.
The Mexican peso appreciated against the U.S. dollar in Friday’s session, benefiting from a weaker greenback following the release of U.S. inflation data that kept expectations for interest rate cuts intact.
The exchange rate closed at 18.3602 pesos per dollar, up 14.50 cents—or 0.78%—from yesterday’s 18.5052, according to official data from Banco de México (Banxico). During the session, the dollar traded in a range of 18.3306–18.5136 pesos. The ICE Dollar Index (DXY), which tracks the dollar against a basket of six major currencies, fell 0.41% to 98.15.
U.S. Inflation Data
The U.S. Personal Consumption Expenditures (PCE) price index—a key Fed inflation gauge—rose 0.3% in August, in line with expectations, and 2.7% year-over-year. The data support market bets for two more rate cuts this year.
According to CME’s Fed Watch tool, the probability of a 25-basis-point cut in October is 85.5%, while a November rate reduction is priced at 67.3%. The stable PCE figures helped cap the dollar’s recent rebound and provided relief to emerging market currencies.
Weekly Performance
On a weekly basis, the peso posted a modest gain. Compared with last Friday’s close of 18.3878 per dollar, today’s level represents a 2.76-cent improvement, or 0.15%.
The peso’s resilience came despite Banxico lowering its benchmark rate by 25 basis points yesterday to 7.50%, following expectations. Since the start of the current cycle in early 2024, cumulative cuts total 375 basis points. Mexico’s still-high real yields relative to other emerging markets have supported carry trade demand, allowing the peso to absorb the rate cut without significant weakening.
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