Mexican Peso recovers after market turmoil subsides

The Mexican Peso edges higher after posting three up days in a row in its most heavily traded pairs. 

MXN is sensitive to market volatility and its recent recovery comes after fears of a US recession dissipated and investors regained their appetite for risk. 

The most recent significant event for the Peso was the Banxico meeting last Thursday. This saw the central bank reducing its key interest rate by 0.25% to 10.75% in response to core inflation in Mexico declining from 4.05% to 4.00% in July. This contrasts with rising headline inflation – from 5.10% to 5.57% – although factors driving up the broader gauge are considered temporary. 

The move had a negative effect on the Mexican Peso that ran counter to expectations. Usually, lower interest rates are negative for a currency as they reduce its attractiveness to foreign investors as a place to park capital, however, on this occasion the opposite was the case. The rate cut also came as a surprise to market participants.