USD/MXN drops below 19.10 as Mexican peso extends recovery

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  • Mexican peso rises versus US Dollar, continues to recover from Urzúa’s resignation losses. 
  • USD/MXN trades below 19.10, but still above the level it had a week ago. 

The USD/MXN is trading at 19.08 at the lowest since Tuesday, supported by the improvement in risk appetite. Earlier today the pair peaked at 19.16 and during the American session turned to the downside. 

Today it was published that U.S. underlying consumer prices increased by the most in nearly 18 months in June. Excluding the volatile food and energy prices, core inflation rose 0.3% m/m in June. However, the market will likely not change expectations that the Federal Reserve will cut interest rates this month”, wrote BBVA analysts. 

US CPI data pushed the greenback modestly to the upside and sent US yield significantly higher. The US Dollar straightened against majors but kept a bearish tone versus most of the emerging market currencies, particularly Latin Americans. 

The USD/MXN is about to post the second decline in a row as it retreat further from the peak it reached on Tuesday at 19.36 following the resignation of Carlos Urzúa as Finance Secretary. Still, it is positive for the week but the pressure on the Mexican peso eased. 

Banxico: One member ask for a rate cut 

The minutes from the last meeting of the Bank of Mexico showed that Board member Gerardo Esquivel-Hernández voted in favor of reducing rate 25 basis points to 8.00%, against the majority that favored a no change.  The meeting took place before the last move higher of USD/MXN that followed the resignation of the Finance Secretary.  

According to Esquivel inflation has exhibited a better performance than the one forecasted in previous Quarterly Reports and is on a convergent path to the target. “I estimate that by December 2019, inflation will be very close to or even below 3.4%, that is, in line with the forecasts of last year’s Quarterly Reports. In addition to the above, there are other elements that must be considered in the determination of the target interest rate: the announced loosening of the monetary policy of advanced economies and the noticeable economic deceleration in the country. These factors open a space to be able to cut the interest rate in 25 basis points without putting at risk nor compromising the fundamental mandate of Banco de México.”
 

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