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  • Mexican peso fails to hold to gains against US Dollar and retreats from weekly highs.  
  • Greenback recovers versus EM currencies as Wall Street turns negative.  
  • Mexico: 2020 budget not negative for markets, inflations keeps falling.  

The USD/MXN pair dropped below 19.50 for the first time since August 14 and bottomed at 19.47 earlier today. Then, as market sentiment deteriorated, it turned to the upside and rose to 19.57, erasing daily losses.  

As of writing, the pair stands at 19.55, around the same level it closed on Friday. The greenback managed to recover against Emerging market currencies pushing USD/MXN to the upside. Wall Street opened with gains on the back of positive developments in trade talks between the US and China and amid expectations of more central bank stimulus. The upbeat tone eased, and US stocks turned neutral to negative.  

Mexico: a new budget and inflation data  

Andres Manuel Lopez Obrador’s administration presented its second budget. It freed up funds for spending, targeting a budget surplus of 0.7% (previously it was 1.0%). According to the document, the increase in spending will be offset by higher revenues but without increasing taxes. Some analysts considered the expectations as too optimistic. Congress will now evaluate the budget for 2020.  

Regarding economic data, the CPI index dropped more than expected in August with the annual rate reaching the lowest since October 2016. In August, the index fell 0.02% and rose 3.16% from a year earlier.  

Lower inflation and the recent appreciation of the Mexican peso represent good news for Bank of Mexico officials and also to the government. It is a positive argument to continue to cut interest rates.