• The Mexican Peso weakens after the release of lower inflation data. 
• This is expected to speed-up interest-rate cuts by the Bank of Mexico, reducing inflows. 
• The US Dollar resurfaces from the depths, reviving USD/MXN’s medium-term uptrend. 

The Mexican Peso (MXN) seesaws between tepid gains and losses in its most heavily-traded pairs on Thursday after weakening for two days in a row. The Peso began to fall at the start of the week due to a pronounced risk-off tone permeating markets which tends to disproportionately disadvantage emerging market currencies. 

Sentiment soured as investors made clear their disappointment at the lack of stimulus measures announced by the China National Development and Reform Commission (NDRC) over the weekend. These concerns later eased, however, after China’s Finance Ministry said it would announce a fresh package of fiscal measures on October 12. 

On Wednesday the Peso continued to weaken following the release of lower-than-expected Mexican inflation data. This showed that in the 12 months to September the headline rate of inflation fell to 4.58%, from 4.99% recorded in August. A strengthening US Dollar (USD) supplied a further headwind.

The decline in inflation increases the probability of the Bank of Mexico (Banxico) will make deeper cuts to interest rates in the near future. This, in turn, could reduce foreign capital inflows, resulting in lower demand for the Mexican Peso.