Mexican peso gains on U.S. dollar ahead of key economic data

The Mexican Peso has seen a modest appreciation against the US Dollar, with the pair dipping below 17.20 after it had earlier reached a daily high at approximately 17.24. This movement comes as market participants turn their attention to upcoming economic indicators from Mexico, including mid-month inflation figures for November and third-quarter GDP data, both due on Friday. These releases are expected to influence the future direction of USD/MXN trades.

In a recent report, INEGI noted a slight month-over-month downturn in Mexico’s economic activity but confirmed an annual expansion according to the IOAE results. Meanwhile, a Citibanamex poll revealed divergent expectations regarding Banxico’s (The Bank of Mexico) future rate trajectory, with projections ranging broadly from around 8.0% to about 10.25% for next year. These forecasts come alongside revised inflation estimates set higher by Banxico at nearly 3.87%.

From the US perspective, financial updates indicated that the Federal Reserve’s minutes suggest further tightening could be possible if warranted by economic conditions. However, labor market and production metrics have pointed to an economic slowdown, leading to speculation about a potential halt in Fed rate increases. Swap markets are currently pricing in approximately 100 basis points worth of reductions from the Fed by 2024.

Retail sales in Mexico for September grew only about 2.3% year-over-year, impacted by Banxico’s rate hikes which aim to moderate demand and control inflationary pressures.

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