• Mexican Peso declines as USD/MXN climbs over 1.40%, driven by expectations of further Banxico rate cuts.
• Cooling inflation in early September bolsters the case for a Banxico rate reduction at the September 26 meeting.
• Bloomberg survey: 20 of 25 analysts expect Banxico to cut 25 bps to 10.50%, with some predicting a 50 bps reduction.

The Mexican Peso tumbles against the Greenback on Wednesday as the latter appreciates sharply against most emerging market currencies. There are expectations for further easing by the Bank of Mexico (Banxico) at its September 26 meeting. This environment has sponsored a leg-up in the exotic pair. At the time of writing, the USD/MXN trades at 19.58, a gain of over 1.40%.

Mexico’s economic docket remained absent on Wednesday, but data revealed on Monday and Tuesday paint a mixed economic picture. In annual data, Economic Activity improved in July, but Retail Sales extended its agony to three consecutive months of registering negative readings.

The latest data set should allow Banxico to cut its interest rate by at least 25 basis points (bps) on Thursday. According to Bloomberg, 20 out of 25 analysts estimate that the central bank will lower borrowing costs to 10.50%. One expects rates to remain unchanged, and four estimate a 50 bps rate cut, following the Fed's footsteps.

If Banxico eases its policy, that would be negative for the Peso. Hence, the USD/MXN could extend its uptrend, with traders setting their sights on the psychological 20.00 figure.

Christian Lawrence, senior cross-asset strategist at Rabobank, noted, “We see room for bouts of downside on the back of tactical carry trade flows during periods of vol suppression. Still, our base is for further MXN weakness over the coming months as reforms and US elections add to MXN risk premia.”