The Mexican Peso (MXN) has been negatively impacted by Banxico’s Deputy Governor Omar Mejia Castelazo’s dovish stance, resulting in a decline of over 1% in its value against the US Dollar (USD). The USD/ MXN exchange rate has risen to 17.80, with the US Dollar Index (DXY) reaching 104.18 as investors seek safe-haven assets following an assassination attempt on former US President Donald Trump.
The political developments in the United States have heightened market volatility, causing a surge in demand for safe-haven assets such as the US Dollar. Banxico’s interest rate discussions are now in focus, with Deputy Governor Mejia Castelazo’s comments sparking significant interest in the financial markets.
Mejia’s dovish stance has led to speculation about potential further easing of interest rates by Banxico, which could have a negative impact on the Mexican Peso’s value. The absence of any major economic data from Mexico this week means that market focus will be on political developments and Banxico’s monetary policy decisions. As a result, the MXN is expected to remain under pressure unless there are any positive developments in the region or changes to Banxico’s stance on interest rates.
Last week’s data showed Mexico’s industrial production rebounding in May after a decline in April’s monthly figures. Meanwhile, the latest Bank of Mexico (Banxico) meeting minutes indicated that the disinflation process has progressed, potentially sparking discussions on adjusting interest rates at future meetings.
Banxico policymakers expect slower growth than expected, citing weak economic activity since the end of 2023. Most members mentioned that inflation will converge towards the target by the fourth quarter of 2025.
They noted that services inflation does not show a clear downward trend, which was a reason for keeping interest rates unchanged at the June meeting.
Mexico’s June inflation figures were higher than expected due to rising food prices, while most economists anticipated Banxico to resume lowering interest rates.
In contrast, June consumer inflation figures in the United States were lower than expected, increasing the likelihood of a September rate cut by the Federal Reserve, according to December 2024 fed funds rate futures. The odds for a September cut are now 98%, up from 95% on Friday.
Technical analysis: The USD/MXN pair surged above 17.80, opening up resistance at 17.90 and potentially challenging the 18.00 figure. Further upside potential is seen above the June 24 high turned resistance at 17.87, followed by the July 5 high of 18.19.
Source: FX Street
