Mexican Peso Jumps Ahead of Key Fed Decision
Mexico’s headline inflation rose more than expected in November, with core inflation also coming in above forecasts.
Quick overview
- Traders anticipate a rate cut announcement from the U.S. central bank at its upcoming meeting.
- The Mexican peso strengthened against the dollar, closing at 18.1919 pesos per dollar amid a volatile trading session.
- Mexico's November inflation data showed a surprising increase, raising caution among investors but still supporting expectations for a Banxico rate cut.
- Despite concerns over rising core inflation, markets expect only one more rate cut from Banxico in the near future.
Traders expect the U.S. central bank to announce a rate cut tomorrow at the conclusion of its meeting. In Mexico, November inflation data is keeping bets alive for a Banxico cut as well.
The Mexican peso inched higher against the dollar in Tuesday’s session. The local currency strengthened despite a volatile trading day, as markets prepared for the Federal Reserve’s final monetary policy decision of the year.
The exchange rate closed at 18.1919 pesos per dollar. Compared with yesterday’s official Banxico close of 18.2559, the peso gained 6.40 centavos, or 0.35%.
The dollar traded within a range of 18.3105 to 18.1713 pesos. The Dollar Index (DXY), which tracks the greenback against six major currencies, was up 0.11% at 99.23 points.
Fed expectations
The Fed will announce its final rate decision of the year on Wednesday. According to the FedWatch tool, which tracks federal funds futures pricing, traders assign an 87.4% probability to a 25-basis-point cut.
On the data front, U.S. job openings, as reported by the JOLTs survey, rose slightly in October, though hiring remained subdued—strengthening the argument for further easing.
Kevin Hassett, White House economic adviser and the frontrunner to become the next Fed Chair, said Tuesday there is “ample room” for additional rate cuts but noted that rising inflation could change the calculus.
Mexico inflation ticks higher
Mexico’s headline inflation rose more than expected in November, with core inflation also coming in above forecasts. The surprise increase injected caution into market expectations, though investors still anticipate a Banxico rate cut next week.
Stubborn core inflation remains a concern despite weak economic momentum. Banxico said in its latest statement that it will “consider lowering the rate.” Even so, markets widely expect only one more cut—for now.
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