Mexican Peso Faces Pressure as Dollar Strengthens

On Wednesday, the Mexican peso weakened against the U.S. dollar. This decline occurred due to the dollar’s persistent strength and weak local retail sales data from August.

The exchange rate for the peso stood at 19.9967 per dollar. This marked a drop from the previous day’s close of 19.9478 pesos, according to official data from the Bank of Mexico (Banxico).

The peso fell by 4.89 cents, equivalent to a 0.25% decrease. The dollar’s price fluctuated between a high of 20.0995 pesos and a low of 19.9282 pesos.

The U.S. Dollar Index (DXY), which measures the greenback against six major currencies, rose by 0.36% to 104.44. Investors’ uncertainty about future U.S. interest rates fueled the dollar’s rise.

Although the Federal Reserve hinted at potential rate cuts, strong economic performance dampened expectations for adjustments.

U.S. Treasury yields increased by 3.5 basis points to 4.251%, boosting the dollar further. According to CME’s FedWatch tool, there is an 87% chance of a 25 basis point rate cut in November.

Vector Analysis noted that investors worry about authorities’ reluctance to reduce rates, despite the Fed’s forecast of another half-point cut this year.

In Mexico, August retail sales data showed a slowdown to 0.1% growth from July’s 0.7%, reported Inegi. Annually, sales fell by 0.8%, exceeding forecasts.

Monex Grupo Financiero explained that weak retail sales support the IMF’s recent downward revision of Mexico’s 2024 growth forecast, shifting focus to upcoming inflation data.

Technically, there remains a possibility for the peso to surpass 20 units and potentially reach September’s high of 20.15 or even higher levels of 20.30 and 20.60 pesos, according to Vector Analysis.

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