Mexican Peso strengthens at start of week on weak US Dollar

Mexican Peso continues its upward trend for the fourth consecutive day amid favorable risk sentiment.

Banxico’s recent rate cut to 10.25% reflects ongoing inflation concerns with forecasts adjusted to 4.7% end for 2024.

Moody’s adjustment of Mexico’s credit outlook to negative highlights potential fiscal and economic challenges from judicial reforms.

Traders monitor potential impact of Trump’s economic policies on Fed’s rate decisions.

The Mexican Peso appreciated against the US Dollar at the beginning of the week, gaining 0.39% during the North American session. A light economic docket in Mexico and the US keeps traders digesting last week’s Bank of Mexico (Banxico) interest rate cut and US inflation data. The USD/MXN trades at 20.27 at the time of writing.

Last Thursday, Banxico lowered rates by 25 basis points to 10.25% as expected, even though the central bank acknowledged inflation risks are tilted to the upside. The board members also updated their forecast and expect inflation to end at 4.7% in 2024, up from 4.3% in previous forecasts.

In addition, Moody’s changed Mexico’s credit outlook to negative, mentioning constitutional reforms, which they claimed “risks eroding checks and balances of the country’s judiciary system,” which could negatively impact Mexico’s economic and fiscal strength.

The Peso continued to rise for the fourth straight day due to an improvement in risk appetite. US equities climbed, while the Greenback dropped to a three-day low.

In the US, investors continued to assess US President-elect Donald Trump’s inflation-prone policies, which might deter the US Federal Reserve (Fed) from lowering rates.

Despite this, traders expect the Fed to cut rates by 25 basis points, as depicted by the CME FedWatch Tool, with odds standing at 62%. Estimates the US central bank would keep the Fed funds rate unchanged lie at 38%.