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  • Mexican peso among the top performers on Thursday.
  • US dollar weakens during the American session, January 2021 Fed funds futures price in negative rates.

The USD/MXN pair dropped from near the 24.50 zone and bottomed at 23.92 before rising back to the 24.00 area where currently trades, consolidating losses.

The decline of the pair was driven initially by a stronger Mexican peso and then by a slide of the greenback. The peso held firm despite another depreciation of the Brazilian real to fresh all-time lows versus the US dollar.

An improvement in risk sentiment and higher crude oil prices also added to the negative bias in USD/MXN. On US hours, the greenback turned lower on rate cut expectations from the Federal Reserve. Price on Fed funds futures now signals expectations of negative rates.

Mexico: inflation drops sharply in April

Data released on Thursday showed that the Consumer Price Index in April rose 2.15% from a year earlier, the lowest since 2015. The decline of the exchange rate during 2020 so far has not trigger inflation.

With the CPI below Banxico’s target, the central bank has room to keep cutting interest rates. The reference rate stands at 6.0% after a 100 bps cut late in April.

Technical levels